This is an actively managed municipal bond ETF that does not track a specific index. Instead, the management team selects credit quality, maturity, and geography directly. Its core objective is federal income tax exemption on interest income, with long-term capital appreciation as a secondary goal.

It suits investors in high federal tax brackets who want tax-advantaged bond interest income.

First Trust launched the ETF in 2014, and it is run with an active management approach.

The management team decides credit analysis, maturity structure, and regional allocation directly, and responds to changes in the market environment. The portfolio is built mainly around investment-grade municipal bonds, and the team also considers whether the alternative minimum tax applies, focusing on improving real after-tax returns.

• Active management allows flexible adjustment of credit quality and maturity
• Federally tax-exempt interest improves after-tax returns for high-bracket investors

Assets under management (AUM) stand at $1.9B, and the expense ratio is 0.39% per year.

Fees are higher than those of passive municipal bond ETFs, but the management team's discretionary judgment can add value, for example by adjusting duration during periods of interest rate change.

The municipal bond market experiences short-term volatility as interest rate conditions change, but the structural appeal of federally tax-exempt interest income continues to provide a steady base of demand among high-bracket investors. Because the fund is actively managed, duration adjustments across the rate cycle tend to cushion returns.

Even when overall bond fund flows slow in a high-rate environment, municipal bonds tend to maintain relatively stable inflows thanks to demand for tax savings. The more the issue of state and local tax deduction limits comes to the fore, the more interest in the tax advantages of municipal bonds tends to rise.

Federally tax-exempt interest and active management are its strengths, while higher fees than passive funds and interest rate sensitivity are the main risks.

In the same municipal bond category, MUB and VTEB shown in the table are large, direct substitutes that are passively managed with low fees, while CGMU is Capital Group's actively managed municipal bond ETF and is similar to FMB in management style. JMUB is J.P. Morgan's short-term municipal bond ETF, which investors seeking lower interest rate sensitivity can compare. California residents can also look at CMF, which adds state-level tax savings. Whether passive or active management improves after-tax returns more depends on an individual's tax bracket and holding period.

Here are the items to review before investing in FMB. Tax savings are the core appeal, but the benefit varies with your actual tax bracket, and you should also check the interest rate environment and fee structure in advance.

There is a possibility of short-term losses from falling bond prices when interest rates rise, and higher fees than passive funds can have a cumulative effect on long-term compounded returns. Credit risk from the deterioration of local government finances also exists, though on a small scale.

This is an ETF worth considering for high-bracket investors who want federally tax-exempt monthly distributions and the flexibility of active management. To maximize the tax benefit, it is sensible to first review your own tax bracket and holding period, then compare after-tax costs against the passive alternatives MUB and VTEB before choosing.