First Trust Municipal High Income ETF (FMHI US) - Portfolio Construction Methodology

Core Insights - The First Trust Municipal High Income ETF (FMHI) targets federally tax-exempt income by investing at least 80% of net assets in U.S. municipal debt, including general obligation, revenue, and private-activity bonds [1] - The fund emphasizes below-investment-grade credit, with a minimum of 50% of net assets in high yield/unrated-to-BB equivalents, and allows up to 10% in distressed municipal securities [1] - The portfolio may include bonds subject to federal Alternative Minimum Tax (AMT) and can utilize derivatives, such as futures, within its strategy [1] Investment Strategy - The fund's investment approach is actively managed, focusing on flexibility across the maturity spectrum of municipal bonds [1] - Pre-refunded or escrowed-to-maturity bonds are classified as investment grade, enhancing the portfolio's quality [1] - The fund generally executes a significant portion of creations and redemptions in cash, which can impact turnover and tax efficiency [1] Risk Management - Security and sector weights are determined by ongoing assessments of structural features, including calls, covenants, and security type, as well as issuer and sector liquidity within the U.S. municipal market [1] - Risk is managed through issue-level diversification and adherence to high-yield and distressed limits [1]