First Trust Managed Municipal ETF (FMB US) - Portfolio Construction Methodology

Core Viewpoint - The First Trust Managed Municipal ETF (FMB US) employs an investment strategy focused on generating federally tax-exempt income through a diversified portfolio of U.S. municipal bonds, primarily from investment-grade issuers, while selectively including below-investment-grade or unrated bonds when favorable [1] Portfolio Construction Methodology - The portfolio construction methodology integrates top-down sector and curve analysis with bottom-up credit underwriting, assessing revenue pledges, covenants, call structures, and issuer financials [1] - The strategy incorporates various risks, including event, liquidity, and downgrade risks, while balancing duration and convexity to align with intermediate municipal risk [1] - Diversification is achieved by state, sector, and issuer, with careful management of position sizes to ensure issuer-level liquidity [1] - The use of taxable equivalents, pre-refunded, and escrowed-to-maturity structures is opportunistic, based on relative value assessments [1] Risk Management - Risk management practices involve monitoring spread and curve factors, as well as call and extension risks, and credit migration [1] - Continuous trading and rebalancing are conducted, rotating among different structures and maturities as market valuations, technical factors, or credit conditions change [1]