First Trust Exchange-Traded Fund VIII First Trust Flexible Municipal High Income ETF (MFLX) seeks to provide high current income exempt from federal income taxes by investing in municipal bonds. The fund focuses on higher-yielding municipal debt securities issued by state and local governments, agencies, and authorities across the United States.
How It Works
MFLX employs an actively managed approach, allowing portfolio managers flexibility to adjust duration, credit quality, and geographic allocation based on market conditions. The fund can invest across the entire municipal bond spectrum, from investment-grade to high-yield securities, with no restrictions on maturity or duration. Portfolio managers actively select bonds to optimize tax-free income while managing interest rate and credit risks through tactical allocation adjustments.
Key Features
- Active management provides flexibility to capitalize on municipal bond market inefficiencies and adjust strategy based on changing conditions
- Targets higher-yielding municipal securities including high-yield and longer-duration bonds often avoided by conservative muni funds
- Tax-free income at federal level with potential state tax exemption for residents of issuing states
Risks
- This ETF can lose significant value when interest rates rise, as longer-duration municipal bonds are highly sensitive to rate changes
- Credit risk exposure increases during economic downturns when municipalities face budget pressures, potentially leading to defaults or downgrades
- Active management risk means the fund may underperform passive municipal bond indexes due to poor security selection or timing decisions
Who Should Own This
Best suited for income-focused investors in higher tax brackets seeking tax-free yield with medium-to-high risk tolerance and 3-5 year time horizons. Appropriate as 10-25% allocation within fixed income portion of diversified portfolios. Most beneficial for investors in 24%+ federal tax brackets where tax-equivalent yields exceed taxable bonds.