First Trust shareholders approve Smith Capital as sub-advisor for ETFs

Shareholders of First Trust's First Trust Smith Unconstrained Bond ETF (UCON) and First Trust Smith Opportunistic Fixed Income ETF (FIXD) have approved Smith Capital Investors, LLC as the new investment sub-advisor, replacing TCW Investment Management Company LLC. The $2.95 billion UCON fund has demonstrated strong performance, delivering a 5.13% return over the past year with a 4.36% dividend yield, and is currently trading near its 52-week high. Significantly, shareholders also approved a "Manager of Managers Structure," which allows First Trust Advisors to appoint or change sub-advisors without future shareholder approval, subject to Board approval, providing enhanced operational flexibility for the firm, which manages approximately $268 billion in assets.

Analysis

First Trust Advisors (FTA) has finalized the transition of its sub-advisor for two fixed-income ETFs, replacing TCW Investment Management with Smith Capital Investors. The more prominent of the two, the First Trust Smith Unconstrained Bond ETF (UCON), is a $2.95 billion fund that has demonstrated strong performance metrics, including a 5.13% return over the past year and a 4.36% dividend yield. The fund's stability is further supported by its price trading near its 52-week high of $25.34, a track record of consistent dividend growth, and low price volatility. The new sub-advisor, Smith Capital, is a specialized fixed-income manager with approximately $12 billion in AUM. A key strategic development is the shareholder approval of a "Manager of Managers Structure," which empowers FTA's Board to modify sub-advisory agreements without subsequent shareholder votes. This governance change significantly enhances operational flexibility for FTA, an advisor managing approximately $268 billion in assets, allowing for more agile management of its fund strategies.

Key Decisions for Investors

• Investors in UCON can view the sub-advisor confirmation as a stabilizing event, given the fund's solid recent performance, attractive yield, and low volatility, making it a continued hold for those seeking stable income.
• For the First Trust Smith Opportunistic Fixed Income ETF (FIXD), investors should now closely monitor initial performance under Smith Capital's management, as the article provides no historical or current performance metrics for this specific fund.
• The approval of the 'Manager of Managers Structure' is a significant governance shift, meaning investors in First Trust ETFs must now place greater reliance on the Board's due diligence when selecting or replacing sub-advisors, as direct shareholder approval will no longer be required.