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First Trust goes after municipal bonds.

Byline: (Staff Writer)

First Trust Advisors said it has created two new managed account portfolios which invest primarily in closed-end funds available in the secondary market. A municipal closed-end fund portfolio, which seeks to provide tax-exempt income, with the potential for total return as a secondary objective, focuses on municipal bond closed-end funds. A taxable fixed-income closed-end fund portfolio is also available and focuses on the taxable fixed-income closed-end fund universe.

Both portfolios have $100,000 investment minimums and approximately 30-40 holdings. The portfolios are managed by two veterans of the closed-end fund industry, Ken Fincher and Jeff Margolin, at the direction of First Trust Advisors' Investment Committee.

Scott Hall, Managing Director of First Trust Advisors, stated "often times the closed-end fund marketplace can be incredibly inefficient, thus creating many attractive opportunities. First Trust Advisors created these managed accounts to take advantage of these opportunities as well as to provide a value-added service to the advisor community whose clients invest in closed-end funds."

The municipal managed account, called First Trust Municipal Closed-End Fund Portfolio, begins with a universe of approximately 110 national municipal closed-end funds. Each fund undergoes a rigorous screening process to identify which funds Fincher and Margolin believe will outperform their peers. The municipal managed account also has the ability to invest in municipal exchange-traded funds (ETFs) as well as state-specific closed-end funds.

The taxable fixed-income managed account, called First Trust Taxable Fixed-Income Closed-End Fund Portfolio, begins with a defined universe of approximately 150 taxable fixed-income closed-end funds from several categories including: convertible, high yield, investment-grade corporate, global, US Government, mortgage, senior loan, limited duration and multi-sector. This portfolio may also hold fixed-income ETFs.

In an effort to screen the large universe of closed-end funds, First Trust Advisors has developed a proprietary screening process that ranks funds using both fundamental and performance criteria. The fundamental categories include, but are not limited to, leverage, call protection, premium/discount to NAV, credit quality, sector, duration, sponsor and volume. The performance categories include, but are not limited to return on net asset value over multiple periods, distribution rate, earnings/distribution and undistributed net investment income.

"While the managers will rely on the fundamental and performance screens to identify the best closed-end funds in the marketplace, the portfolios are model-driven but not model-constrained," said Scott Hall. "Ken and Jeff intend to use their 34 years of combined experience in the closed-end fund industry to manage these new portfolios and to choose funds which they believe are being undervalued by the market. We believe many advisors and their investors are currently very interested in this type of portfolio," he added.

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Publication:CPI Financial
Date:May 3, 2009
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