UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22245
First Trust Exchange-Traded Fund III
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant’s telephone number, including area code: (630) 765-8000
Date of fiscal year end: July 31
Date of reporting period: January 31, 2024
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Report to Stockholders.
| (a) | The registrant’s semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: |
|
For the Six Months Ended
January 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Horizon Managed Volatility Domestic ETF (HUSV) |
First Trust Horizon Managed Volatility Developed International ETF (HDMV) |
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV) |
First Trust Exchange-Traded Fund III
Semi-Annual Report
January 31, 2024
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
The statistical information that follows may help you understand each Fund’s performance compared to that of a relevant market benchmark.
It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund III
Semi-Annual Letter from the Chairman and CEO
January 31, 2024
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for the Managed Volatility Funds of First Trust Exchange-Traded Fund III (the “Funds”), which contains detailed information about the Funds for the six-month period ended January 31, 2024.
While there were many noteworthy financial and economic developments over the past six months, perhaps chief among them was the December 2023 statement from the Federal Reserve (the “Fed”). After voting on December 13 to keep the Federal Funds target rate unchanged, the Fed revealed that it was planning up to three interest rate cuts totaling 75 basis points in 2024. The timing of the Fed’s statement came as a surprise to many, especially given its September 2023 announcement that its policy rate was likely to remain “higher for longer” due to stubbornly high inflation.
With December’s announcement effectively taking further interest rate hikes off the table, the discussion now focuses on the timing of the Fed’s cuts. As expected, there are numerous opinions. At the end of December 2023, the futures market for the Federal Funds target rate indicated an 84.3% chance that the Fed would cut its policy rate at its March 2024 meeting. Since then, better than expected economic data and a re-acceleration in the rate of inflation have changed the calculus substantially. As of January 31, 2024, the same futures market indicated a 34.9% chance of the first interest rate cut occurring in March, representing a decline of 49.4 percentage points from where it stood last month.
Falling interest rates could be a boon to an already exuberant U.S. consumer. Consumer sentiment is surging, and shoppers are spending in droves. The University of Michigan’s “Survey of Consumers” revealed that the metric rose by 21.7% on a year-over-year basis in January 2024, reaching its highest level since July 2021. Adobe Analytics reported that a record $222.1 billion was spent online over the 2023 holiday shopping season (which runs from November 1 through December 31), up from $211.7 billion over the same period in 2022. In addition, real discretionary consumer spending rose to $10.9 trillion in 2023, an increase of $1.2 trillion from the $9.7 trillion in real discretionary spending in 2019 (pre-COVID-19). That said, there is data that suggests all this spending may not be sustainable. The Federal Reserve Bank of New York reported that aggregate household debt rose to a record $17.5 trillion at the end of 2023, while the share of credit card balances that moved into serious delinquency (90 days or more past due) rose to 6.3% in the fourth quarter of the year. The last time this share of credit card balances were seriously delinquent was in the second quarter of 2011.
Keep in mind that higher interest rates have been very good for some investors. Take the large portion of cash in money market funds, CDs, and even investments in the broader fixed income markets, as an example. Higher interest rates and recent disinflation have created an environment where, for the first time in many years, these assets are earning a positive real return. By the Fed’s own admission, interest rates are not likely to remain at these levels for long. For the time being, however, investors with capital on hand are being rewarded.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
First Trust Horizon Managed Volatility Domestic ETF (HUSV)
The investment objective of First Trust Horizon Managed Volatility Domestic ETF (the “Fund”) is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, the Sub-Advisor employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which the Sub-Advisor may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol “HUSV.” The first day of secondary market trading in shares of the Fund was August 25, 2016.
|
| | | Average Annual Total Returns | |
| | | | Inception
(8/24/16)
to 1/31/24 | | Inception
(8/24/16)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(See Notes to Fund Performance Overview on page 9.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
International Business Machines Corp. | |
| |
Berkshire Hathaway, Inc., Class B | |
| |
Procter & Gamble (The) Co. | |
| |
| |
| |
| |
| |
| |
Fund Performance Overview (Unaudited) (Continued)
First Trust Horizon Managed Volatility Domestic ETF (HUSV) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Horizon Managed Volatility Developed International ETF (HDMV)
The investment objective of First Trust Horizon Managed Volatility Developed International ETF (the “Fund”) is to provide capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks and depositary receipts of developed market companies listed and traded on non-U.S. exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The term “developed market companies” means those companies (i) whose securities are traded principally on a stock exchange in a developed market country, (ii) with a primary business office in a developed market country, or (iii) that have at least 50% of their assets in, or derive at least 50% of their revenues or profits from, a developed market country. The Sub-Advisor considers Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States to be developed market countries. However, this list may change in response to market and geopolitical events. Under normal market conditions, the Fund will invest in at least three countries and at least 40% of its net assets in countries other than the United States. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol “HDMV.” The first day of secondary market trading in shares of the Fund was August 25, 2016.
|
| | | Average Annual Total Returns | |
| | | | Inception
(8/24/16)
to 1/31/24 | | Inception
(8/24/16)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(See Notes to Fund Performance Overview on page 9.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
| |
Oversea-Chinese Banking Corp., Ltd. | |
| |
| |
| |
| |
United Overseas Bank Ltd. | |
| |
McDonald’s Holdings Co., Japan Ltd. | |
Zurich Insurance Group AG | |
| |
Fund Performance Overview (Unaudited) (Continued)
First Trust Horizon Managed Volatility Developed International ETF (HDMV) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
The investment objective of First Trust Horizon Managed Volatility Small/Mid ETF (the “Fund”) is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in small- and/or mid-capitalization common stocks listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility. The goal of this strategy is to capture upside price movements in rising markets and reduce downside risk when markets decline. To implement this strategy, the Sub-Advisor employs volatility forecasting models to forecast future expected volatility. The strategy is largely quantitative and rules-based, but also includes multiple parameters over which the Sub-Advisor may exercise discretion (including, but not limited to, the number of holdings and the weightings of particular holdings) in connection with its active management of the Fund. Shares of the Fund are listed and trade on the NYSE Arca, Inc. under the ticker symbol “HSMV.” The first day of secondary market trading in shares of the Fund was April 7, 2020.
|
| | | Average Annual Total Returns | |
| | | Inception
(4/6/20)
to 1/31/24 | Inception
(4/6/20)
to 1/31/24 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(See Notes to Fund Performance Overview on page 9.)
| % of Total
Long-Term
Investments |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Long-Term
Investments |
Neurocrine Biosciences, Inc. | |
New York Times (The) Co., Class A | |
| |
| |
| |
| |
Edgewell Personal Care Co. | |
| |
| |
| |
| |
Fund Performance Overview (Unaudited) (Continued)
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under Securities and Exchange Commission rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund IIISemi-Annual ReportJanuary 31, 2024 (Unaudited) Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) serves as the investment advisor to the First Trust Horizon Managed Volatility Domestic ETF (“HUSV”), the First Trust Horizon Managed Volatility Developed International ETF (“HDMV”), and the First Trust Horizon Managed Volatility Small/Mid ETF (“HSMV”) (each a “Fund” and collectively, the “Funds”). First Trust is responsible for the ongoing monitoring of each Fund’s investment portfolio, managing each Fund’s business affairs and providing certain administrative services necessary for the management of each Fund.
Sub-Advisor
Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) serves as the investment sub-advisor to the Funds.
Portfolio Management Team
The following persons serve as portfolio managers of the Funds:
Michael Dickson, PhD, Head of Research and Product Development and Portfolio Manager of Horizon
Scott Ladner, Chief Investment Officer and Portfolio Manager of Horizon
Steven Clark, PhD, Portfolio Manager of Horizon
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Funds. Each portfolio manager has served as part of the portfolio management team of the Funds since each Fund’s inception.
First Trust Exchange-Traded Fund IIIUnderstanding Your Fund ExpensesJanuary 31, 2024 (Unaudited) As a shareholder of First Trust Horizon Managed Volatility Domestic ETF, First Trust Horizon Managed Volatility Developed International ETF or First Trust Horizon Managed Volatility Small/Mid ETF (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended January 31, 2024.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
August 1, 2023 | Ending
Account Value
January 31, 2024 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust Horizon Managed Volatility Domestic ETF (HUSV) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Horizon Managed Volatility Developed International ETF (HDMV) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (August 1, 2023 through January 31, 2024), multiplied by 184/366 (to reflect the six-month period). |
First Trust Horizon Managed Volatility Domestic ETF (HUSV)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | |
|
| Aerospace & Defense — 2.3% | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Intercontinental Exchange, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Electric Utilities — 2.3% | |
| | |
| | |
| | |
| Electrical Equipment — 1.1% | |
| | |
| | |
|
| Electronic Equipment, Instruments & Components | |
| | |
| Teledyne Technologies, Inc. (a) | |
| | |
| | |
| | |
| Financial Services — 4.9% | |
| Berkshire Hathaway, Inc., Class B (a) | |
| Mastercard, Inc., Class A | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Laboratory Corp. of America Holdings | |
| | |
| | |
| | |
| Hotels, Restaurants & Leisure | |
| | |
| | |
| | |
| | |
| Household Products — 5.5% | |
| | |
| | |
| Procter & Gamble (The) Co. | |
| | |
| Industrial Conglomerates — | |
| Honeywell International, Inc. | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Domestic ETF (HUSV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (Continued) |
| | |
| | |
| | |
| Arthur J. Gallagher & Co. | |
| | |
| | |
| Marsh & McLennan Cos., Inc. | |
| | |
| | |
| Akamai Technologies, Inc. (a) | |
| International Business Machines Corp. | |
| | |
| | |
| | |
| | |
| | |
| Consolidated Edison, Inc. | |
| Oil, Gas & Consumable Fuels | |
| | |
| Williams (The) Cos., Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| Professional Services — 2.1% | |
| Broadridge Financial Solutions, Inc. | |
| | |
| | |
| | |
| AvalonBay Communities, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| O’Reilly Automotive, Inc. (a) | |
| | |
| | |
| | |
| Technology Hardware, Storage | |
| | |
| | |
|
| | |
| | |
| Philip Morris International, Inc. | |
| | |
| Wireless Telecommunication | |
| | |
|
|
| Total Investments — 99.8% | |
| | |
| Net Other Assets and Liabilities — 0.2% | |
| | |
| Non-income producing security. |
Abbreviations throughout the Portfolio of Investments: |
| – Real Estate Investment Trusts |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Developed International ETF (HDMV)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | |
COMMON STOCKS (a) (b) — 99.3% |
| | |
| ANZ Group Holdings Ltd. (AUD) (c) | |
| | |
| | |
| | |
| Coles Group Ltd. (AUD) (c) | |
| Commonwealth Bank of Australia (AUD) (c) | |
| Lottery (The) Corp., Ltd. (AUD) (c) | |
| Medibank Pvt Ltd. (AUD) (c) | |
| National Australia Bank Ltd. (AUD) (c) | |
| | |
| Telstra Group Ltd. (AUD) (c) | |
| Washington H Soul Pattinson & Co., Ltd. (AUD) (c) | |
| Wesfarmers Ltd. (AUD) (c) | |
| Westpac Banking Corp. (AUD) (c) | |
| Woolworths Group Ltd. (AUD) (c) | |
| | |
| | |
| Anheuser-Busch InBev S.A./N.V. (EUR) (c) | |
| Groupe Bruxelles Lambert N.V. (EUR) (c) | |
| | |
| | |
| CK Infrastructure Holdings Ltd. (HKD) (c) | |
| Jardine Matheson Holdings Ltd. | |
| | |
| | |
| CK Asset Holdings Ltd. (HKD) (c) | |
| CK Hutchison Holdings Ltd. (HKD) (c) | |
| | |
| | |
| Carlsberg A.S., Class B (DKK) (c) | |
| | |
| | |
| | |
| Air Liquide S.A. (EUR) (c) | |
| | |
| | |
| Bureau Veritas S.A. (EUR) (c) | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Veolia Environnement S.A. (EUR) (c) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Deutsche Boerse AG (EUR) (c) | |
| Deutsche Telekom AG (EUR) (c) | |
| | |
| | |
| Hannover Rueck SE (EUR) (c) | |
| Mercedes-Benz Group AG (EUR) (c) | |
| Muenchener Rueckversicherungs- Gesellschaft AG in Muenchen (EUR) (c) | |
| | |
| | |
| | |
| | |
| BOC Hong Kong Holdings Ltd. (HKD) (c) | |
| CLP Holdings Ltd. (HKD) (c) | |
| Hong Kong & China Gas Co., Ltd. (HKD) (c) | |
| Power Assets Holdings Ltd. (HKD) (c) | |
| | |
| | |
| Kerry Group PLC, Class A (EUR) (c) | |
| | |
| Check Point Software Technologies Ltd. (d) | |
| | |
| Assicurazioni Generali S.p.A. (EUR) (c) | |
| | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Developed International ETF (HDMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (a) (b) (Continued) |
| | |
| Infrastrutture Wireless Italiane S.p.A. (EUR) (c) (e) (f) | |
| Poste Italiane S.p.A. (EUR) (c) (e) (f) | |
| | |
| Terna-Rete Elettrica Nazionale (EUR) (c) | |
| | |
| | |
| | |
| | |
| ANA Holdings, Inc. (JPY) (c) (d) | |
| Asahi Group Holdings Ltd. (JPY) (c) | |
| Asahi Kasei Corp. (JPY) (c) | |
| Bridgestone Corp. (JPY) (c) | |
| | |
| Central Japan Railway Co. (JPY) (c) | |
| Daito Trust Construction Co., Ltd. (JPY) (c) | |
| Daiwa House Industry Co., Ltd. (JPY) (c) | |
| East Japan Railway Co. (JPY) (c) | |
| FUJIFILM Holdings Corp. (JPY) (c) | |
| Hankyu Hanshin Holdings, Inc. (JPY) (c) | |
| Hirose Electric Co., Ltd. (JPY) (c) | |
| Hoshizaki Corp. (JPY) (c) | |
| Hulic Co., Ltd. (JPY) (c) | |
| Japan Airlines Co., Ltd. (JPY) (c) | |
| Japan Exchange Group, Inc. (JPY) (c) | |
| Japan Post Bank Co., Ltd. (JPY) (c) | |
| Japan Post Holdings Co., Ltd. (JPY) (c) | |
| Japan Tobacco, Inc. (JPY) (c) | |
| | |
| | |
| Kintetsu Group Holdings Co., Ltd. (JPY) (c) | |
| Kirin Holdings Co., Ltd. (JPY) (c) | |
| Koei Tecmo Holdings Co., Ltd. (JPY) (c) | |
| | |
|
| | |
| | |
| Kyowa Kirin Co., Ltd. (JPY) (c) | |
| McDonald’s Holdings Co., Japan Ltd. (JPY) (c) | |
| MEIJI Holdings Co., Ltd. (JPY) (c) | |
| Nintendo Co., Ltd. (JPY) (c) | |
| NIPPON EXPRESS HOLDINGS, Inc. (JPY) (c) | |
| Nippon Telegraph & Telephone Corp. (JPY) (c) | |
| | |
| Oji Holdings Corp. (JPY) (c) | |
| Ono Pharmaceutical Co., Ltd. (JPY) (c) | |
| | |
| Otsuka Holdings Co., Ltd. (JPY) (c) | |
| | |
| Secom Co., Ltd. (JPY) (c) | |
| Sekisui Chemical Co., Ltd. (JPY) (c) | |
| Sekisui House Ltd. (JPY) (c) | |
| Shionogi & Co., Ltd. (JPY) (c) | |
| | |
| Sumitomo Chemical Co., Ltd. (JPY) (c) | |
| Suntory Beverage & Food, Ltd. (JPY) (c) | |
| Takeda Pharmaceutical Co., Ltd. (JPY) (c) | |
| Tobu Railway Co., Ltd. (JPY) (c) | |
| | |
| | |
| Toray Industries, Inc. (JPY) (c) | |
| | |
| | |
| West Japan Railway Co. (JPY) (c) | |
| | |
| | |
| | |
| | |
| Heineken Holding N.V. (EUR) (c) | |
| | |
| Koninklijke Ahold Delhaize N.V. (EUR) (c) | |
| Koninklijke KPN N.V. (EUR) (c) | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Developed International ETF (HDMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (a) (b) (Continued) |
| | |
| | |
| Wolters Kluwer N.V. (EUR) (c) | |
| | |
| | |
| Auckland International Airport Ltd. (NZD) | |
| Spark New Zealand Ltd. (NZD) (c) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| CapitaLand Ascendas REIT (SGD) (c) | |
| CapitaLand Integrated Commercial Trust (SGD) (c) | |
| DBS Group Holdings Ltd. (SGD) (c) | |
| Jardine Cycle & Carriage Ltd. (SGD) (c) | |
| Oversea-Chinese Banking Corp., Ltd. (SGD) (c) | |
| Singapore Exchange Ltd. (SGD) (c) | |
| Singapore Technologies Engineering Ltd. (SGD) (c) | |
| Singapore Telecommunications Ltd. (SGD) (c) | |
| United Overseas Bank Ltd. (SGD) (c) | |
| Wilmar International Ltd. (SGD) (c) | |
| | |
| | |
| ACS Actividades de Construccion y Servicios S.A. (EUR) (c) | |
| | |
| | |
| | |
| Naturgy Energy Group S.A. (EUR) (c) | |
| Redeia Corp. S.A. (EUR) (c) | |
| Telefonica S.A. (EUR) (c) | |
| | |
| | |
|
| | |
| Essity AB, Class B (SEK) (c) | |
| | |
| | |
| | |
| Baloise Holding AG (CHF) (c) | |
| Coca-Cola HBC AG (GBP) (c) | |
| Helvetia Holding AG (CHF) (c) | |
| | |
| | |
| | |
| Roche Holding AG (CHF) (c) | |
| | |
| Swiss Prime Site AG (CHF) (c) | |
| | |
| | |
| Zurich Insurance Group AG (CHF) (c) | |
| | |
| | |
| | |
| Coca-Cola Europacific Partners PLC | |
| Compass Group PLC (GBP) (c) | |
| | |
| | |
| InterContinental Hotels Group PLC (GBP) (c) | |
| Intertek Group PLC (GBP) (c) | |
| London Stock Exchange Group PLC (GBP) (c) | |
| National Grid PLC (GBP) (c) | |
| Reckitt Benckiser Group PLC (GBP) (c) | |
| | |
| Sage Group (The) PLC (GBP) (c) | |
| Smiths Group PLC (GBP) (c) | |
| | |
| | |
| | |
|
|
| Total Investments — 99.3% | |
| | |
| Net Other Assets and Liabilities — 0.7% | |
| | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Developed International ETF (HDMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | Portfolio securities are categorized based upon their country of incorporation. For a breakdown of the portfolio securities by sector, please see the Fund Performance Overview. |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At January 31, 2024, securities noted as such are valued at $36,215,196 or 96.9% of net assets. Certain of these securities are fair valued using a factor provided by a third-party pricing service due to the change in value between the foreign markets’ close and the New York Stock Exchange close exceeding a certain threshold. On days when this threshold is not exceeded, these securities are typically valued at the last sale price on the exchange on which they are principally traded. |
| Non-income producing security. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
Abbreviations throughout the Portfolio of Investments: |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Currency Exposure Diversification | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for country breakout. |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | |
|
| Aerospace & Defense — 2.4% | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Commerce Bancshares, Inc. | |
| | |
| | |
| Prosperity Bancshares, Inc. | |
| | |
| | |
| | |
| Neurocrine Biosciences, Inc. (a) | |
| United Therapeutics Corp. (a) | |
| | |
| | |
| | |
| Lennox International, Inc. | |
| | |
| | |
| Affiliated Managers Group, Inc. | |
| | |
| | |
| Janus Henderson Group PLC | |
| Jefferies Financial Group, Inc. | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Construction & Engineering | |
| | |
| | |
| MDU Resources Group, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Consumer Staples Distribution | |
| BJ’s Wholesale Club Holdings, Inc. (a) | |
| Casey’s General Stores, Inc. | |
| Grocery Outlet Holding Corp. (a) | |
| Performance Food Group Co. (a) | |
| Sprouts Farmers Market, Inc. (a) | |
| US Foods Holding Corp. (a) | |
| | |
| | |
| | |
| Graphic Packaging Holding Co. | |
| | |
| | |
| | |
| Diversified Consumer Services | |
| Grand Canyon Education, Inc. (a) | |
| | |
| Service Corp. International | |
| | |
| | |
| Essential Properties Realty Trust, Inc. | |
| | |
| | |
| Diversified Telecommunication | |
| Cogent Communications Holdings, Inc. | |
| Electric Utilities — 2.5% | |
| | |
| | |
| | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (Continued) |
| Electric Utilities (Continued) | |
| | |
| Portland General Electric Co. | |
| | |
| Electrical Equipment — 0.4% | |
| | |
| Electronic Equipment, Instruments & Components | |
| Arrow Electronics, Inc. (a) | |
| | |
| Insight Enterprises, Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Madison Square Garden Sports Corp. (a) | |
| Financial Services — 4.4% | |
| | |
| | |
| | |
| Mr. Cooper Group, Inc. (a) | |
| NMI Holdings, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Chesapeake Utilities Corp. | |
| | |
| New Jersey Resources Corp. | |
| | |
| Southwest Gas Holdings, Inc. | |
| | |
| | |
| | |
| Knight-Swift Transportation Holdings, Inc. | |
| | |
|
| Ground Transportation (Continued) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Envista Holdings Corp. (a) | |
| Globus Medical, Inc., Class A (a) | |
| | |
| | |
| Acadia Healthcare Co., Inc. (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Healthcare Realty Trust, Inc. | |
| Omega Healthcare Investors, Inc. | |
| Sabra Health Care REIT, Inc. | |
| | |
| Hotels, Restaurants & Leisure | |
| Choice Hotels International, Inc. | |
| | |
| Papa John’s International, Inc. | |
| | |
| | |
| | |
| | |
| Household Durables — 0.5% | |
| | |
| Household Products — 0.3% | |
| | |
| Independent Power and Renewable Electricity | |
| | |
| | |
| EastGroup Properties, Inc. | |
| First Industrial Realty Trust, Inc. | |
| | |
| Rexford Industrial Realty, Inc. | |
| | |
| | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (Continued) |
| | |
| American Financial Group, Inc. | |
| | |
| CNO Financial Group, Inc. | |
| Fidelity National Financial, Inc. | |
| First American Financial Corp. | |
| Hanover Insurance Group (The), Inc. | |
| Old Republic International Corp. | |
| | |
| Reinsurance Group of America, Inc. | |
| RenaissanceRe Holdings Ltd. | |
| | |
| Selective Insurance Group, Inc. | |
| | |
| | |
| | |
| | |
| | |
| Albany International Corp., Class A | |
| | |
| | |
| | |
| Franklin Electric Co., Inc. | |
| | |
| | |
| Lincoln Electric Holdings, Inc. | |
| | |
| | |
| | |
| Watts Water Technologies, Inc., Class A | |
| | |
| | |
| | |
| | |
| New York Times (The) Co., Class A | |
| | |
| Reliance Steel & Aluminum Co. | |
| | |
| | |
| | |
| ARMOUR Residential REIT, Inc. | |
| Ellington Financial, Inc. | |
| | |
| | |
|
| | |
| | |
| | |
| Northwestern Energy Group, Inc. | |
| | |
| | |
| | |
| Oil, Gas & Consumable Fuels | |
| | |
| | |
| | |
| | |
| Edgewell Personal Care Co. | |
| | |
| | |
| Jazz Pharmaceuticals PLC (a) | |
| Prestige Consumer Healthcare, Inc. (a) | |
| | |
| Professional Services — 5.2% | |
| CACI International, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Science Applications International Corp. | |
| | |
| | |
| | |
| Apartment Income REIT Corp. | |
| Equity LifeStyle Properties, Inc. | |
| Independence Realty Trust, Inc. | |
| | |
| | |
| | |
| Brixmor Property Group, Inc. | |
| | |
| | |
| Phillips Edison & Co., Inc. | |
| Retail Opportunity Investments Corp. | |
| | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | |
COMMON STOCKS (Continued) |
| Semiconductors & Semiconductor Equipment | |
| | |
| | |
| | |
| CommVault Systems, Inc. (a) | |
| Dolby Laboratories, Inc., Class A | |
| Dropbox, Inc., Class A (a) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Four Corners Property Trust, Inc. | |
| Gaming and Leisure Properties, Inc. | |
| Lamar Advertising Co., Class A | |
| National Storage Affiliates Trust | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Textiles, Apparel & Luxury | |
| | |
| | |
| | |
| | |
| | |
| MSC Industrial Direct Co., Inc., Class A | |
| | |
| | |
| American States Water Co. | |
| | |
|
| Water Utilities (Continued) | |
| California Water Service Group | |
| Essential Utilities, Inc. | |
| | |
|
|
| Total Investments — 99.8% | |
| | |
| Net Other Assets and Liabilities — 0.2% | |
| | |
| Non-income producing security. |
Abbreviations throughout the Portfolio of Investments: |
| – Real Estate Investment Trusts |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Assets and Liabilities
January 31, 2024 (Unaudited)
| First Trust Horizon Managed Volatility Domestic ETF
(HUSV) | First Trust Horizon Managed Volatility Developed International ETF
(HDMV) | First Trust Horizon Managed Volatility Small/Mid ETF
(HSMV) |
| | | |
| | | |
| | | |
Foreign currency, at value | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
Investment securities purchased | | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accumulated distributable earnings (loss) | | | |
| | | |
NET ASSET VALUE, per share | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | |
| | | |
Foreign currency, at cost (proceeds) | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Operations
For the Six Months Ended January 31, 2024 (Unaudited)
| First Trust Horizon Managed Volatility Domestic ETF
(HUSV) | First Trust Horizon Managed Volatility Developed International ETF
(HDMV) | First Trust Horizon Managed Volatility Small/Mid ETF
(HSMV) |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
NET INVESTMENT INCOME (LOSS) | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
| | | |
| | | |
Foreign currency transactions | | | |
| | | |
Net change in unrealized appreciation (depreciation) on: | | | |
| | | |
Foreign currency translation | | | |
Net change in unrealized appreciation (depreciation) | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Changes in Net Assets
| First Trust Horizon Managed Volatility Domestic ETF (HUSV) | First Trust Horizon Managed Volatility Developed International ETF (HDMV) |
| Six Months
Ended
1/31/2024 (Unaudited) | | Six Months
Ended
1/31/2024 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Horizon Managed Volatility Small/Mid ETF (HSMV) |
Six Months
Ended
1/31/2024 (Unaudited) | |
| |
| |
| |
| |
| |
|
| |
| |
|
| |
| |
| |
| |
| |
|
| |
| |
| |
|
| |
| |
| |
| |
| |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights
For a share outstanding throughout each period First Trust Horizon Managed Volatility Domestic ETF (HUSV)
| Six Months
Ended
1/31/2024
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (d) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust Horizon Managed Volatility Developed International ETF (HDMV)
| Six Months
Ended
1/31/2024
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| The Fund received a reimbursement from the advisor in the amount of $6,254, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust Horizon Managed Volatility Small/Mid ETF (HSMV)
| Six Months
Ended
1/31/2024
(Unaudited) | | Period
Ended
7/31/2020 (a) |
| | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (f) | | | | | |
| Inception date is April 6, 2020, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Amount represents less than $0.01. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) 1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of seventeen funds that are offering shares. This report covers the three funds (each a “Fund” and collectively, the “Funds”) listed below, each a diversified series of the Trust and listed and traded on the NYSE Arca, Inc.
First Trust Horizon Managed Volatility Domestic ETF – (ticker “HUSV”) |
First Trust Horizon Managed Volatility Developed International ETF – (ticker “HDMV”) |
First Trust Horizon Managed Volatility Small/Mid ETF – (ticker “HSMV”) |
Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
Each Fund is an actively managed exchange-traded fund. The investment objective of each Fund is to provide capital appreciation.
Under normal market conditions, HUSV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks of domestic companies listed and traded on U.S. national securities exchanges that Horizon Investments, LLC (“Horizon” or the “Sub-Advisor”) believes exhibit low future expected volatility.
Under normal market conditions, HDMV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in common stocks and depositary receipts of developed market companies listed and traded on non-U.S. exchanges that Horizon believes exhibit low future expected volatility.
Under normal market conditions, HSMV seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in small- and/or mid-capitalization common stocks listed and traded on U.S. national securities exchanges that Horizon believes exhibit low future expected volatility.
There can be no assurance that a Fund will achieve its investment objective. The Funds may not be appropriate for all investors.
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Securities trading on foreign exchanges or over-the-counter markets that close prior to the NYSE close may be valued using a systematic fair valuation model provided by a third-party pricing service. If these foreign securities meet certain criteria in relation to the valuation model, their valuation is systematically adjusted to reflect the impact of movement in the U.S. market after the close of the foreign markets.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
If the securities in question are foreign securities, the following additional information may be considered:
1)
the last sale price on the exchange on which they are principally traded;
2)
the value of similar foreign securities traded on other foreign markets;
3)
ADR trading of similar securities;
4)
closed-end fund or exchange-traded fund trading of similar securities;
5)
foreign currency exchange activity;
6)
the trading prices of financial products that are tied to baskets of foreign securities;
7)
factors relating to the event that precipitated the pricing problem;
8)
whether the event is likely to recur;
9)
whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and
10)
other relevant factors.
Because foreign markets may be open on different days than the days during which investors may transact in the shares of a Fund, the value of the Fund’s securities may change on the days when investors are not able to transact in the shares of the Fund. The value of the securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of January 31, 2024, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Distributions received from a Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
C. Foreign Currency
The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) on foreign currency translation” on the Statements of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statements of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in “Net realized gain (loss) on foreign currency transactions” on the Statements of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statements of Operations.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended July 31, 2023 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust Horizon Managed Volatility Domestic ETF | | | |
First Trust Horizon Managed Volatility Developed International ETF | | | |
First Trust Horizon Managed Volatility Small/Mid ETF | | | |
As of July 31, 2023, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust Horizon Managed Volatility Domestic ETF | | | |
First Trust Horizon Managed Volatility Developed International ETF | | | |
First Trust Horizon Managed Volatility Small/Mid ETF | | | |
E. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For HUSV and HDMV, taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and state audit. For HSMV, the taxable period ended 2020 and taxable years ended 2021, 2022, and 2023 remain open to federal and state audit. As of January 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2023, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust Horizon Managed Volatility Domestic ETF | |
First Trust Horizon Managed Volatility Developed International ETF | |
First Trust Horizon Managed Volatility Small/Mid ETF | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) As of January 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust Horizon Managed Volatility Domestic ETF | | | | |
First Trust Horizon Managed Volatility Developed International ETF | | | | |
First Trust Horizon Managed Volatility Small/Mid ETF | | | | |
F. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for supervising the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
First Trust is paid an annual unitary management fee for each Fund. Pursuant to the Investment Management Agreement between First Trust and the Trust, First Trust manages the investment of the Funds’ assets and is responsible for the expenses of each Fund, including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, which are paid by each respective Fund. Prior to October 16, 2023, First Trust also provided fund reporting services to the Funds for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedules:
| | |
Fund net assets up to and including $2.5 billion | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | |
Fund net assets greater than $10 billion up to and including $15 billion | | |
Fund net assets greater than $15 billion | | |
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Horizon serves as the Funds’ sub-advisor and manages each Fund’s portfolio subject to First Trust’s supervision. The Sub-Advisor receives a sub-advisory fee from First Trust equal to 50% of any remaining monthly unitary management fee paid to the Advisor after the average Fund’s expenses accrued during the most recent twelve months are subtracted from the unitary management fee for that month. During any period in which First Trust’s management fee is reduced in accordance with the breakpoints described above, the sub-advisory fee will be reduced to reflect the reduction in First Trust’s management fee.
Effective October 16, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to October 16, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BBH was responsible for custody of each Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for each Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended January 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust Horizon Managed Volatility Domestic ETF | | |
First Trust Horizon Managed Volatility Developed International ETF | | |
First Trust Horizon Managed Volatility Small/Mid ETF | | |
For the six months ended January 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust Horizon Managed Volatility Domestic ETF | | |
First Trust Horizon Managed Volatility Developed International ETF | | |
First Trust Horizon Managed Volatility Small/Mid ETF | | |
5. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2024.
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
Horizon Investments, LLC
6210 Ardrey Kell Road, Suite 300
Charlotte, NC 28277
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
|
For the Six Months Ended
January 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust California Municipal High Income ETF (FCAL) |
First Trust New York Municipal High Income ETF (FMNY) |
First Trust Exchange-Traded Fund III
Semi-Annual Report
January 31, 2024
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objectives. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
The statistical information that follows may help you understand each Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund III
Semi-Annual Letter from the Chairman and CEO
January 31, 2024
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for certain series of the First Trust Exchange-Traded Fund III (the “Funds”), which contains detailed information about the Funds for the six-month period ended January 31, 2024.
While there were many noteworthy financial and economic developments over the past six months, perhaps chief among them was the December 2023 statement from the Federal Reserve (the “Fed”). After voting on December 13 to keep the Federal Funds target rate unchanged, the Fed revealed that it was planning up to three interest rate cuts totaling 75 basis points in 2024. The timing of the Fed’s statement came as a surprise to many, especially given its September 2023 announcement that its policy rate was likely to remain “higher for longer” due to stubbornly high inflation.
With December’s announcement effectively taking further interest rate hikes off the table, the discussion now focuses on the timing of the Fed’s cuts. As expected, there are numerous opinions. At the end of December 2023, the futures market for the Federal Funds target rate indicated an 84.3% chance that the Fed would cut its policy rate at its March 2024 meeting. Since then, better than expected economic data and a re-acceleration in the rate of inflation have changed the calculus substantially. As of January 31, 2024, the same futures market indicated a 34.9% chance of the first interest rate cut occurring in March, representing a decline of 49.4 percentage points from where it stood last month.
Falling interest rates could be a boon to an already exuberant U.S. consumer. Consumer sentiment is surging, and shoppers are spending in droves. The University of Michigan’s “Survey of Consumers” revealed that the metric rose by 21.7% on a year-over-year basis in January 2024, reaching its highest level since July 2021. Adobe Analytics reported that a record $222.1 billion was spent online over the 2023 holiday shopping season (which runs from November 1 through December 31), up from $211.7 billion over the same period in 2022. In addition, real discretionary consumer spending rose to $10.9 trillion in 2023, an increase of $1.2 trillion from the $9.7 trillion in real discretionary spending in 2019 (pre-COVID-19). That said, there is data that suggests all this spending may not be sustainable. The Federal Reserve Bank of New York reported that aggregate household debt rose to a record $17.5 trillion at the end of 2023, while the share of credit card balances that moved into serious delinquency (90 days or more past due) rose to 6.3% in the fourth quarter of the year. The last time this share of credit card balances were seriously delinquent was in the second quarter of 2011.
Keep in mind that higher interest rates have been very good for some investors. Take the large portion of cash in money market funds, CDs, and even investments in the broader fixed income markets, as an example. Higher interest rates and recent disinflation have created an environment where, for the first time in many years, these assets are earning a positive real return. By the Fed’s own admission, interest rates are not likely to remain at these levels for long. For the time being, however, investors with capital on hand are being rewarded.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
First Trust California Municipal High Income ETF (FCAL)
The First Trust California Municipal High Income ETF’s (the “Fund”) primary investment objective is to seek to provide current income that is exempt from regular federal income taxes and California income taxes, and its secondary objective is long-term capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes and California income taxes (collectively, “Municipal Securities”). Municipal Securities will be issued by or on behalf of the State of California or territories or possessions of the U.S. (including, but not limited to, Puerto Rico, the U.S. Virgin Islands and Guam), and/or the political subdivisions, agencies, authorities and other instrumentalities of such State, territories or possessions. The Fund lists and principally trades its shares on Nasdaq, Inc. under the ticker symbol “FCAL.”
|
| | | Average Annual Total Returns | |
| | | | Inception
(6/20/17)
to 1/31/24 | | Inception
(6/20/17)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Bloomberg 10 Year California Exempt Index | | | | | | |
Bloomberg Municipal Bond Index | | | | | | |
(See Notes to Fund Performance Overview on page 8.)
Fund Performance Overview (Unaudited) (Continued)
First Trust California Municipal High Income ETF (FCAL) (Continued)
| % of Total
Investments
(including cash) |
| |
| |
Government Obligation Bond - Unlimited Tax | |
Industrial Development Bond | |
| |
| |
Certificates of Participation | |
| |
| |
| |
| |
Pre-refunded/Escrowed-to-maturity | |
| |
| |
| |
Continuing Care Retirement Communities | |
Government Obligation Bond - Limited Tax | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net Other Assets and Liabilities(1) | |
| |
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Includes variation margin on futures contracts. |
| The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
Fund Performance Overview (Unaudited) (Continued)
First Trust California Municipal High Income ETF (FCAL) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust New York Municipal High Income ETF (FMNY)
The First Trust New York Municipal High Income ETF’s (the “Fund”) primary investment objective is to seek to provide current income that is exempt from regular federal income taxes and New York income taxes, and its secondary objective is long-term capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes and New York State and New York City income taxes (collectively, “Municipal Securities”). Municipal Securities will be issued by or on behalf of the State of New York or territories or possessions of the U.S. (including, but not limited to, Puerto Rico, the U.S. Virgin Islands and Guam), and/or the political subdivisions, agencies, authorities and other instrumentalities of such State, territories or possessions. The Fund lists and principally trades its shares on NYSE Arca, Inc. under the ticker symbol “FMNY.”
|
| | | Average Annual Total Returns | |
| | | Inception
(5/12/21)
to 1/31/24 | Inception
(5/12/21)
to 1/31/24 |
| | | | |
| | | | |
| | | | |
| | | | |
Bloomberg Municipal New York 12-17 Years Index | | | | |
Bloomberg Municipal Bond Index | | | | |
(See Notes to Fund Performance Overview on page 8.)
Fund Performance Overview (Unaudited) (Continued)
First Trust New York Municipal High Income ETF (FMNY) (Continued)
| % of Total
Investments
(including cash) |
| |
| |
| |
Government Obligation Bond - Limited Tax | |
| |
| |
| |
Government Obligation Bond - Unlimited Tax | |
Industrial Development Bond | |
| |
| |
| |
| |
| |
| |
Pre-refunded/Escrowed-to-maturity | |
Certificates of Participation | |
| |
| |
| |
| |
| |
| |
Net Other Assets and Liabilities(1) | |
| |
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Includes variation margin on futures contracts. |
| The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
Fund Performance Overview (Unaudited) (Continued)
First Trust New York Municipal High Income ETF (FMNY) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived by the Advisor.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under Securities and Exchange Commission rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund IIISemi-Annual ReportJanuary 31, 2024 (Unaudited) Advisor
First Trust Advisors L.P. (“First Trust”) serves as the investment advisor to the First Trust California Municipal High Income ETF (“FCAL”) and the First Trust New York Municipal High Income ETF (“FMNY”) (each a “Fund” and collectively, the “Funds”). First Trust is responsible for the ongoing monitoring of each Fund’s investment portfolio, managing each Fund’s business affairs and providing certain administrative services necessary for the management of each Fund.
Portfolio Management Team
The following persons serve as portfolio managers of the Funds:
Tom Byron, Senior Vice President, Senior Portfolio Manager
Johnathan N. Wilhelm, Senior Vice President, Senior Portfolio Manager
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Funds. Tom Byron has served as portfolio manager since 2022 and Johnathan N. Wilhelm has served as portfolio manager for FCAL since 2017 and for FMNY since 2021.
First Trust Exchange-Traded Fund IIIUnderstanding Your Fund ExpensesJanuary 31, 2024 (Unaudited) As a shareholder of First Trust California Municipal High Income ETF or First Trust New York Municipal High Income ETF (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended January 31, 2024.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
August 1, 2023 | Ending
Account Value
January 31, 2024 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust California Municipal High Income ETF (FCAL) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust New York Municipal High Income ETF (FMNY) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (August 1, 2023 through January 31, 2024), multiplied by 184/366 (to reflect the six-month period). |
| These expense ratios reflect an expense waiver. See Note 3 in the Notes to Financial Statements. |
First Trust California Municipal High Income ETF (FCAL)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | | | |
|
| | |
| Aliso Viejo CA Cmnty Fac Dist Spl Tax Ref Glenwood At Aliso Viejo | | | |
| Antelope Vly E Kern CA Wtr Agy Wtr Rev Ref | | | |
| Azusa CA Spl Tax Cmnty Facs Dist No 2005-1-Impt, AGM | | | |
| Beaumont CA Spl Tax Cmnty Facs Dist No 93-1 Impt Area No 8F | | | |
| Beaumont CA Spl Tax Cmnty Facs Dist No 93-1 Impt Area No 8F | | | |
| Beaumont CA Spl Tax Cmnty Facs Dist No 93-1 Impt Area No 8F | | | |
| Beaumont CA Spl Tax Cmnty Facs Dist No 93-1 Impt Area No 8F | | | |
| Beverly Hills CA Pub Fing Auth Wtr Rev, Ser A | | | |
| Burbank CA Wtr & Pwr Elec Rev | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser B-1 (Mandatory put 08/01/31) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bonds, Ser D (Mandatory put 11/01/28) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bonds-Clean Energy Proj, Ser G-1 (Mandatory put 04/01/30) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Var Sustainable Bond Clean Energy Proj, Ser A-1 (Mandatory put 05/01/29) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Var Sustainable Bonds Clean Energy Proj, Ser C (Mandatory put 10/01/31) | | | |
| CA Cmnty Choice Fing Auth Sustainable Bd Clean Energy Proj Rev, Ser A (Mandatory put 12/01/27) | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Ref | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Sr Ref, Ser A | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Sr Ref, Ser A | | | |
| CA Hsg Fin Agy Muni Ctfs, Ser A | | | |
| CA Muni Fin Auth Envrnmntl Impt Rev Var Sustainable Bond Aymium Williams Proj, AMT (Mandatory put 06/26/24) (a) | | | |
| CA Pub Fin Auth Rev Ref Henry Mayo Newhall Hosp, Ser A | | | |
| CA Pub Fin Auth Rev Var Sharp Hlthcare Remk 05/04/18, Ser B (b) | | | |
| CA Pub Fin Auth Sr Living Rev ENSO Vlg Proj Sustainable Bond, Ser A (a) | | | |
| CA Pub Fin Auth Sr Living Rev ENSO Vlg Proj Sustainable Bond, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Alliance Clg Ready Pub Schs Proj, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Alliance Clg Ready Pub Schs Proj, Ser C (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Granada Hills Chrt Oblig Grp (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Kipp SoCal Pub Schs, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Kipp SoCal Pub Schs, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Granada Hills Chrt Oblig Grp, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Hth Learning Proj, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Hth Learning Proj, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Value Schs, Ser A (a) | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CA Sch Fin Auth Sch Fac Rev Ref Value Schs, Ser A (a) | | | |
| CA Sch Fin Auth Sch Fac Rev, Ser A (a) | | | |
| | | | |
| CA St Eductnl Facs Auth Rev Art Ctr Clg of Design, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev El Camino Hosp | | | |
| CA St Hlth Facs Fing Auth Rev Episcopal Cmntys & Services, Ser B | | | |
| CA St Hlth Facs Fing Auth Rev Initial Entrance Fees, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev Kaiser Permanente, Ser A-2 | | | |
| CA St Hlth Facs Fing Auth Rev Kaiser Permanente, Subser A-2 | | | |
| CA St Hlth Facs Fing Auth Rev Ref Scripps Hlth, Ser A (c) | | | |
| CA St Hlth Facs Fing Auth Rev Ref Sutter Hlth, Ser B | | | |
| CA St Hlth Facs Fing Auth Rev Var Ref Stanford Hlth Care, Ser A (Mandatory put 08/15/25) | | | |
| CA St Infra & Econ Dev Bank Natl Chrt Equitable Sch Revolving Fund Social Bonds, Ser B | | | |
| CA St Infra & Econ Dev Bank Rev Brightline E Passenger Rail Proj Remk, Ser A, AMT (Mandatory put 01/30/25) (a) | | | |
| CA St Muni Fin Auth Chrt Sch Lease Rev Sycamore Acdmy Proj (d) | | | |
| CA St Muni Fin Auth Chrt Sch Lease Rev Vista Chrt Middle Sch Proj (e) | | | |
| CA St Muni Fin Auth Chrt Sch Rev John Adams Acdmys Lincoln Proj, Ser A (a) | | | |
| CA St Muni Fin Auth Chrt Sch Rev Palmdale Aerospace Acdmy Proj (a) | | | |
| CA St Muni Fin Auth Chrt Sch Rev Palmdale Aerospace Acdmy Proj, Ser A (a) | | | |
| CA St Muni Fin Auth Chrt Sch Rev, Ser A (a) | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Bold Prog, Ser B | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Ref Sr Caritas Projs, Ser A | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sr Caritas Affordable Hsg Inc Projs, Ser A | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sr Caritas Affordable Hsg Inc Projs, Ser A | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sr Caritas Affordable Hsg Inc Projs, Ser A | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sub Ref Caritas Proj, Ser B | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sub Ref Caritas Proj, Ser B | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Sub Ref Caritas Proj, Ser B | | | |
| CA St Muni Fin Auth Ref Palomar Hlth, Ser A, COPS, AGM | | | |
| CA St Muni Fin Auth Ref Palomar Hlth, Ser A, COPS, AGM | | | |
| CA St Muni Fin Auth Rev Aldersly Proj, Ser A | | | |
| CA St Muni Fin Auth Rev Bethany Home Proj | | | |
| CA St Muni Fin Auth Rev CA Baptist Univ, Ser A (a) | | | |
| CA St Muni Fin Auth Rev Ref CA Lutheran Univ | | | |
| CA St Muni Fin Auth Rev Ref CA Lutheran Univ | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CA St Muni Fin Auth Rev Ref Eisenhower Med Ctr, Ser A | | | |
| CA St Muni Fin Auth Rev Ref Emerson Clg, Ser B | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref Retmnt Hsg Fdtn Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref Retmnt Hsg Fdtn Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref Southwestern Law Sch | | | |
| CA St Muni Fin Auth Sol Wst Disp Rev Var Ref Rep Svcs Inc Proj Remk, Ser A, AMT (b) | | | |
| CA St Muni Fin Auth Sol Wst Disp Rev Var Rep Svcs Inc Proj Remk, Ser B, AMT (Mandatory put 07/15/24) (b) | | | |
| CA St Muni Fin Auth Spl Fac Rev United Airls Inc Proj, AMT | | | |
| CA St Muni Fin Auth Spl Tax Rev Bold Prog, Ser B | | | |
| CA St Muni Fin Auth Stdt Hsg Rev Chf Davis I | | | |
| CA St Muni Fin Auth Stdt Hsg Rev Chf Davis I | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Ref Waste Mgmt Inc, Ser B-1, AMT | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Ref Wst Mgmt Inc, Ser A1, AMT | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Ref Wst Mgmt Inc, Ser A3, AMT | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Var Ref Rep Svcs Remk, Ser B (Mandatory Put 05/01/24) (a) (b) | | | |
| CA St Poll Control Fing Auth Wtr Furnishing Rev Plant Bonds, AMT (a) | | | |
| CA St Poll Control Fing Auth Wtr Furnishing Rev Poseidon Res LP Desalination Proj, AMT (a) | | | |
| CA St Prerefunded Various Purp (Pre-refunded maturity (04/01/26) | | | |
| CA St Pub Wks Brd Lease Rev Judicial Council CA, Ser B | | | |
| CA St Pub Wks Brd Lease Rev Various Corr Facs, Ser A | | | |
| CA St Pub Wks Brd Lease Rev Various Corr Facs, Ser C | | | |
| | | | |
| | | | |
| CA St Ref Various Purpose | | | |
| CA St Sch Fin Auth Chrt Sch Rev Ref Classical Academies Oceanside Proj, Ser A (a) | | | |
| CA St Sch Fin Auth Chrt Sch Rev Sustainability Bonds Ref Camino Nuevo Chrt Acdmy, Ser A (a) | | | |
| CA St Stwd Cmntys Dev Auth Mfh Rev Var Adams Boulevard & Harvard Gardens Apartments Sub, Ser L-1 (Mandatory put 03/01/24) | | | |
| CA St Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs | | | |
| CA St Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs | | | |
| CA St Stwd Cmntys Dev Auth Rev Ref Insd Enloe Med Ctr, CA MTG INS (Pre-refunded maturity 02/15/26) | | | |
| CA St Stwd Cmntys Dev Auth Spl Tax Rev Impt Area No 1 | | | |
| CA St Stwd Cmntys Dev Auth Stdt Hsg Rev Ref Chf Irvine LLC | | | |
| CA St Stwd Cmntys Dev Auth Stdt Hsg Rev Ref Chf Irvine LLC | | | |
| CA St Stwd Cmntys Dev Auth Stwd Rev Stwd Cmnty Infra Prog, Ser C1 | | | |
| | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CA St Unrefunded Various Purp | | | |
| CA St Unrefunded Wtr Sys, Ser AS (Pre-refunded maturity (12/01/24) | | | |
| CA Stwd Cmntys Dev Auth Rev Kaiser Permanente J Remk, Ser 2004-J (Mandatory put 11/01/29) | | | |
| CA Stwd Cmntys Dev Auth Rev Loma Linda Univ Med Ctr,
Ser A (a) | | | |
| CA Stwd Cmntys Dev Auth Rev Loma Linda Univ Med Ctr,
Ser A (a) | | | |
| CA Stwd Cmntys Dev Auth Rev Ref CA Baptist Univ, Ser A (a) | | | |
| CA Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs, Ser A | | | |
| CA Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs, Ser A | | | |
| CA Stwd Cmntys Dev Auth Rev Var Adventist Hlth Sys W A Remk, Ser A (Mandatory put 03/01/27) | | | |
| Chino CA Cmnty Facs Dist Spl Tax #2003-3 Impt Area #7 | | | |
| City of Santa Clara CA Swr Rev Sustainable Bonds, COPS | | | |
| Clovis CA Unif Sch Dist, COPS | | | |
| Clovis CA Unif Sch Dist, COPS | | | |
| Clovis CA Unif Sch Dist, COPS | | | |
| Compton CA Unif Sch Dist Los Angeles Co Schs Fing Prog, Ser A, COPS, BAM | | | |
| Cotati-Rohnert Park CA Unif Sch Dist 2016 Election, Ser C, AGM | | | |
| CSCDA Cmnty Impt Auth CA Essential Hsg Rev Union S Bay Sustainable Bonds, Ser A-2 (a) | | | |
| Del Mar CA Union Sch Dist Spl Tax Ref | | | |
| Dinuba CA Jt Unif Sch Dist, COPS, AGM | | | |
| E Bay CA Muni Util Dist Wtr Sys Rev Sustainable Bond, Ser A | | | |
| El Dorado CA Irr Dist Rev Ref, Ser C | | | |
| Elk Grove CA Fin Auth Spl Tax Rev Laguna Ridge CFD #2005-1 | | | |
| Elk Grove CA Unif Sch Dist Election of 2016 | | | |
| Folsom Ranch CA Fing Auth Spl Tax Rev Cmnty Facs Dist No 19 Mangini | | | |
| Fontana CA Spl Tax Cmnty Facs Dist #80 Bella Strada | | | |
| Fontana CA Spl Tax Cmnty Facs Dist #80 Bella Strada | | | |
| Fontana CA Spl Tax Spl Tax | | | |
| Fontana CA Unif Sch Dist Unrefunded, AGM | | | |
| Fresno CA Jt Pwrs Fing Auth Lease Rev Ref Master Lease Proj, Ser A, AGM | | | |
| Golden St Tobacco Securitization Corp CA Tobacco Stlmt Ref Tobacco Stlmt Asset Backed Bonds, Ser A-1 | | | |
| Golden St Tobacco Securitization Corp CA Tobacco Stlmt Ref, Ser A-1 (Pre-refunded maturity (06/01/28) | | | |
| Imperial CA Cmnty Clg Dist Election of 2022, Ser A, AGM | | | |
| Indio CA Elec Fing Auth Elec Rev | | | |
| Irvine CA Facs Fing Auth Lease Rev Gateway Preserve Land Acq Proj | | | |
| Irvine CA Spl Tax Great Park Impt Area No 10, BAM | | | |
| Irvine CA Unif Sch Dist Spl Tax Cmnty Facs Dist #09-1, Ser A | | | |
| Irvine CA Unif Sch Dist Spl Tax Cmnty Facs Dist #09-1, Ser C | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Kern CA Cmnty Clg Dist, Ser D | | | |
| King City CA Union Sch Dist Cap Apprec Election 1998-C, Ser C, AMBAC | | | |
| Lammersville CA Jt Unif Sch Dist Spl Tax Cmnty Facs Dist #2014-1 Mountain House Sch Facs | | | |
| Lammersville CA Jt Unif Sch Dist Spl Tax Cmnty Facs Dist #2014-1 Mountain House Sch Facs | | | |
| Lammersville CA Jt Unif Sch Dist Spl Tax Cmnty Facs Dist #2014-1 Mountain House Sch Facs | | | |
| Long Beach CA Arpt Rev Ref, Ser A, AGM | | | |
| Long Beach CA Arpt Rev, Ser C, AMT, AGM | | | |
| Long Beach CA Unif Sch Dist Ref | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Prerefunded Subord Ref, Ser D, AMT (Pre-refunded maturity 11/15/31) | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sr, Ser C, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Subord Los Angeles Intl Arpt, Ser F, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sustainable Bond Ref Subord Priv Activity, Ser A, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Unrefunded Subord Ref, Ser D, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Unrefunded Subord Ref, Ser D, AMT | | | |
| Los Angeles CA Dept of Arpts, Ser E | | | |
| Los Angeles CA Dept of Wtr & Pwr Wtrwks Rev, Ser A | | | |
| Los Angeles CA Dept Wtr & Pwr Rev Var Ref Remk, Ser B-6 (b) | | | |
| | | | |
| Los Angeles CA Unif Sch Dist Rev, Ser C | | | |
| Los Angeles Cnty CA Dev Auth Mf Hsg Rev Var, Ser C (Mandatory put 12/01/26) | | | |
| Los Osos CA Cmnty Svcs Wstwtr Assmnt Dist #1 Ref Reassmnt | | | |
| Marina CA Redev Agy Successor Agy Tax Allocation Hsg, Ser B | | | |
| Marina CA Redev Agy Successor Agy Tax Allocation Hsg, Ser B | | | |
| Menifee CA Spl Tax, Ser A | | | |
| Menifee CA Spl Tax, Ser A | | | |
| Menifee CA Union Sch Dist Spl Tax Cmnty Facs Dist #2011-1 | | | |
| Menifee CA Union Sch Dist, Ser C, AGM | | | |
| Met Wtr Dist of Sthrn CA Wtrwks Rev Ref Rev Sub, Ser A | | | |
| Met Wtr Dist of Sthrn CA Wtrwks Rev, Ser A | | | |
| Modesto CA Elem Sch Dist Stanislaus Cnty Election of 2018 Measure D, Ser C | | | |
| Modesto CA Spl Tax Ref Cmnty Facs Dist # 2004-1 Vlg 1 #2 | | | |
| Morongo Band of Mission Indians CA Rev Ref, Ser B (a) | | | |
| Natomas CA Unif Sch Dist, AGM | | | |
| Norco CA Spl Tax Ref Norco Ridge Ranch, BAM | | | |
| Nrthrn CA Energy Auth Cmnty Spl Rev, Ser A (Mandatory put 07/01/24) | | | |
| Oceanside CA Unif Sch Dist Unrefunded-2022, Ser A, AGC, CABS | | | |
| Ontario CA Cmnty Facs Dist #40 Spl Tax Emeral Park Fac | | | |
| Ontario CA Cmnty Facs Dist #40 Spl Tax Emeral Park Fac | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Ontario CA Cmnty Facs Dist #40 Spl Tax Emeral Park Fac | | | |
| Orange Ctr CA Sch Dist Election of 2022, Ser A, AGM | | | |
| Oxnard CA Sch Dist Election of 2022, Ser A, BAM | | | |
| Palm Desert CA Spl Tax Ref Univ Park | | | |
| | | | |
| Pittsburg CA Successor Agy Redev Agy Ref Los Medanos Cmnty Dev Dist Tax Allocation, AGM | | | |
| Pittsburg CA Unif Sch Dist Ref | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax No 2018-1 Grantline 208 | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax No 2018-1 Grantline 208 | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax No 2018-1 Grantline 208 | | | |
| Rialto CA Pub Fing Auth Lease Rev Police Station Proj, Ser A | | | |
| Ripon CA Redev Agy Successor Agy Tax Allocation Ref, BAM | | | |
| River Islands CA Pub Fing Auth Spl Tax Auth Cmnty Facs Dist#2016-1 2023 Spl TX Bonds, AGM | | | |
| River Islands CA Pub Fing Auth Spl Tax Cmnty Facs Dist #2019-1 Phase 2 Pub Impts | | | |
| Riverside CA Elec Rev Ref, Ser A (c) | | | |
| Riverside CA Unif Sch Dist Election of 2016, Ser B | | | |
| Riverside CA Unif Sch Dist Fing Auth Spl Tax Ref, BAM | | | |
| Riverside CA Unif Sch Dist Impt Area No 1 | | | |
| Riverside CA Unif Sch Dist Impt Area No 1 | | | |
| Riverside CA Unif Sch Dist Impt Area No 1 | | | |
| Riverside CA Wtr Rev, Ser A | | | |
| Riverside Cnty CA Flood Control & Wtr Consv Dist Promissory Nts -Zone 4 | | | |
| Riverside Cnty CA Pub Fingauth Proj Area 1, Ser A, AGM | | | |
| Riverside Cnty CA Transprtn Commn Ref, Ser A | | | |
| Riverside Cnty CA Transprtn Commn Toll Rev Ref Sr Lien Rctc 91 Express Lanes, Ser B-1 | | | |
| Romoland Sch Dist Rev Underwood Impt Area No | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Vlg CFD #1 | | | |
| Sacramento CA Spl Tax Natomas Meadows Cmnty Facs Dist #2007-01 (a) | | | |
| Sacramento CA Transient Occupancy Tax Rev Sub Convention Ctr Complex, Ser C | | | |
| Sacramento Cnty CA Arpt Sys Rev Ref, Ser C, AMT | | | |
| San Diego CA Pub Fac Fing Auth Swr Rev Subord, Ser A | | | |
| San Diego CA Pub Fac Fing Auth Wtr Rev, Ser A | | | |
| San Diego CA Pub Facs Fing Auth Lease Rev Capital Impt Projs, Ser A | | | |
| San Diego CA Unif Sch Dist Ref, Ser R-2, CONV CABS | | | |
| San Diego CA Unif Sch Dist Sustainable Bond, Ser F2 | | | |
| San Diego CA Unif Sch Dist Trans, Ser A | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| San Diego Cnty CA Ltd Rev Obligs Ref Sanford Burnham Prebys Med Discovery Institute | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Subord Ref Rev, Ser B, AMT | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Subord Ref, Ser A | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Subord, Ser B, AMT | | | |
| San Diego Cnty CA Spl Tax Harmony Grove Vlg Impt Area No 2, Ser A | | | |
| San Diego Cnty Water Auth Rev Proj Sustainable Bond, Ser A | | | |
| San Francisco CA City & City Pub Utils Commn Wtr Rev Reg & Loc Wtr | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev Ref Second Ser, Ser 2020, AMT | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev Ref, Ser A, AMT | | | |
| San Francisco CA City & Cnty Dcnty Dev Spl Tax Dist No 2020-1 Mission Rock Facs & Svcs, Ser A (a) | | | |
| San Francisco Calif City & Cnty Arpts Commn Intl Arpt Rev, Ser E, AMT | | | |
| San Francisco City & Cnty CA Redev Agy Successor Agy Cmnty Ref Cmnty Facs Dt#6 Mission Bay S Pub Impts, AGM | | | |
| San Francisco City & Cnty CA Redev Agy Successor Agy Tax Ref Mission Bay N Redev Proj, Ser A | | | |
| San Francisco City & Cnty CA, Ser B | | | |
| San Francisco City & Cnty Redev Agy Successor Agy Rev Transbay Infra Proj, Ser B, AGM | | | |
| San Joaquin Hills CA Transprtn Corridor Agy Toll Road Rev Jr Lien, CABS | | | |
| San Joaquin Hills CA Transprtn Corridor Agy Toll Road Rev Ref Sr Lien Toll Road, Ser A | | | |
| San Joaquin Hills CA Transprtn Corridor Agy Toll Road Rev Ref, Ser A, NATL-RE, CABS | | | |
| San Jose CA Arpt Rev Ref, Ser A, AMT, BAM | | | |
| San Jose CA Unif Sch Dist Santa Clara Cnty, Ser C (Pre-refunded maturity (08/01/24) | | | |
| San Luis Coastal CA Unif Sch Dist Election of 2022, Ser A | | | |
| San Luis Obispo Cnty CA Cmnty Clg Dist Election of 2014, Ser D (c) | | | |
| San Luis Obispo Cnty CA Fing Auth Lease Rev Multiple Capital Projs Ref, Ser A | | | |
| San Luis Obispo Pub Fing Auth Lease Rev Ref Cultural Arts Dist Parking Proj | | | |
| Santa Clara Vly CA Wtr Dist Safe Clean Wtr Rev Sustainable Bond, Ser A | | | |
| Santa Clara Vly CA Wtr Dist Safe Clean Wtr Rev Sustainable Bond, Ser A | | | |
| Santa Clarita CA Cmnty Facs Dist Vista Canyon #2016-1 (a) | | | |
| Santa Margarita CA Wtr Dist Spl Tax Ref, Ser A, BAM | | | |
| Sch Proj for Util Rate Reduction CA Rans Natural Gas Purchase Prog | | | |
| Semitropic CA Impt Dist Semitropic Wtr Storage Dist Ref 2nd Lien, Ser A | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Simi Vly CA Unif Sch Dist, Ser B, AGM | | | |
| Temecula Vly CA Unif Sch Dist Cmnty Facs Dist #2014-1 | | | |
| Temecula Vly Unif Sch Dist Fing Auth CA Spl Tax Rev, BAM | | | |
| Temescal Vly CA Wtr Dist Spl Tax Terramor Cmnty Facs Dist #4 Impt Area #1 | | | |
| | | | |
| Tustin CA Cmnty Fac Dist Spl Tax Ref #06-1 Legacy Columbus Vlgs, Ser A | | | |
| Univ of CA CA Rev Ref, Ser BN | | | |
| Univ of CA CA Rev Var Ref Remk, Ser AL-4 (b) | | | |
| Univ of CA CA Revs Ref, Ser BS (c) | | | |
| Univ of CA CA Rgts Med Ctr Pooled Rev Ref, Ser 0-1 (b) | | | |
| Val Verde Unif Sch Dist Rev Commn Facs Dist | | | |
| Val Verde Unif Sch Dist Rev Commn Facs Dist | | | |
| Western Placer CA Unif Sch Dist Trans | | | |
| Western Placer Wst Mgmt Auth CA Solid Wst Rev Landfill Impt Proj | | | |
| Woodland CA Fin Auth Wstwtr Rev Junior Lien (Pre-refunded maturity (03/01/24) | | | |
| | |
| | |
| Parkland Preserve CDD FL Spl Assmnt Rev, Ser A | | | |
| Rhodine Road N CDD FL Spl Assmnt 2019 Assmnt Area | | | |
| | |
| | |
| Guam Govt Busn Privilege Tax Rev Ref, Ser D | | | |
| | |
| Saint James Parish LA Rev Var Nustar Logistics LP Proj (Mandatory put 06/01/30) (a) | | | |
| | |
| Saint Louis MO Muni Fin Corp Sales Tax Leasehold Rev Ref | | | |
| | |
| Buckeye OH Tobacco Stlmt Fing Auth Ref Sr, Class 2, Ser B-2 | | | |
| | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-2 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured, Converted, Ser A-2 | | | |
| | |
| | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Terminal Impt Proj, Ser B-2, AMT | | | |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Military Installation Dev Auth UT Tax Allocation Rev, Ser A-2 | | | |
|
|
| Total Investments — 97.6% | |
| | |
| Net Other Assets and Liabilities — 2.4% | |
| | |
Futures Contracts at January 31, 2024 (See Note 2C - Futures Contracts in the Notes to Financial Statements):
| | | | | Unrealized
Appreciation
(Depreciation)/
Value |
Ultra 10-Year U.S. Treasury Notes | | | | | |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2024, securities noted as such amounted to $23,212,259 or 10.7% of net assets. |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| When-issued security. The interest rate shown reflects the rate in effect at January 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2D - Restricted Securities in the Notes to Financial Statements). |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P., the Fund’s advisor. |
| |
Abbreviations throughout the Portfolio of Investments: |
| |
| – Assured Guaranty Municipal Corp. |
| – American Municipal Bond Assurance Corp. |
| – Alternative Minimum Tax |
| |
| – California Mortgage Insurance |
| – Capital Appreciation Bonds |
| – Convertible Capital Appreciation Bonds |
| – Certificates of Participation |
| – National Public Finance Guarantee Corp. |
See Notes to Financial Statements
First Trust California Municipal High Income ETF (FCAL)Portfolio of Investments (Continued)January 31, 2024 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statements of Assets and Liabilities. |
See Notes to Financial Statements
First Trust New York Municipal High Income ETF (FMNY)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | | | |
|
| | |
| Ridge at Apopka CDD FL Spl Assmnt | | | |
| | |
| Build NYC Res Corp NY Rev Sustainable Bond E Harlem Scholars Acdmy Chrt Sch Proj (a) | | | |
| Build NYC Res Corp NY Rev Sustainable Bond Kipp NYC Pub Sch Facs Canal W Proj | | | |
| Chautauqua Cnty NY Capital Res Corp Exempt Facs Rev Var Ref NRG Energy Proj Remk (Mandatory put 04/03/28) | | | |
| | | | |
| Dutchess Cnty NY Loc Dev Corp Mf Mtebs Sustainable Bonds Tomopkins Terrace Hsg LP Proj | | | |
| Dutchess Cnty NY Loc Dev Corp Rev Marist Clg Proj | | | |
| | | | |
| Hempstead Town NY Loc Dev Corp Rev Ref Hofstra Univ Proj, Ser A | | | |
| Hudson Yards Infra Corp NY 2nd Indenture Rev Ref, Ser A | | | |
| | | | |
| Long Beach NY, Ser B, BAM | | | |
| Long Island NY Pwr Auth Elec Sys Rev Ref, Ser A | | | |
| Met Transprtn Auth NY Dedicated Tax Fund Sustainable Bond, Ser B-1 | | | |
| Met Transprtn Auth NY Rev Sustainable Bond Ref, Ser C-1 | | | |
| Monroe Cnty NY Indl Dev Agy Mf Hsg Rev Var Andrews Terrace Cmnty Partners LP Proj B-1 (Mandatory put 07/01/27) | | | |
| Monroe Cnty NY Indl Dev Corp Rev Univ of Rochester Proj, Ser A | | | |
| Nassau Cnty NY Indl Dev Agy Var Ref & Impt Cold Spring (b) | | | |
| Nassau Cnty NY Loc Econ Asst Corp Edl Rev Roosevelt Children Acdmy Chrt Sch Proj, Ser A | | | |
| Nassau Cnty NY, Ser A, AGM | | | |
| New York City NY Hsg Dev Corp Mf Hsg Rev Sustainable Dev Bonds, Ser F-2A (Mandatory put 12/22/26) | | | |
| New York City NY Muni Wtr Fin Auth Wtr & Swr Sys Rev Ref 2nd General Resolution, Ser AA | | | |
| New York City NY Muni Wtr Fin Auth Wtr & Swr Sys Rev Var 2nd Gen Resolution Sub FF-2 (b) | | | |
| New York City NY Transitional Fin Auth Rev Sub-Future Tax Secured-Fiscal 2014, Subser D-1 | | | |
| New York City NY Transitional Fin Auth Rev Subord, Ser B-1 | | | |
| New York NY Adjustable Fiscal 2015, Subser F-6 (b) | | | |
| NY St Dorm Auth Revs Non St Supported Debt Memorial Sloan Kettering Cancer Ctr, Ser 1 | | | |
| NY St Dorm Auth Revs Non St Supported Debt Pratt Institute Ref | | | |
| NY St Dorm Auth Revs Non St Supported Debt Ref New Sch,
Ser A | | | |
| NY St Dorm Auth Revs Non St Supported Debt Ref Northwell Hlth Oblig Grp, Ser A | | | |
| NY St Dorm Auth Revs Non St Supported Debt Sch Dists Rev Bond Financing Prog, Ser A, BAM | | | |
| NY St Dorm Auth Revs Non St Supported Debt Ser A | | | |
| NY St Dorm Auth St Personal Income Tax Rev Ref, Ser A-Grp 3 | | | |
See Notes to Financial Statements
First Trust New York Municipal High Income ETF (FMNY)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| NY St Energy Rsrch & Dev Auth Poll Cntrl Rev Ref NY Elec & Gas, Ser C | | | |
| NY St Envrnmntl Facs Corp Solid W Disp Rev Var Draw Down Casella Waste Sys Inc Proj, Ser R-2, AMT (Mandatory put 09/03/30) (a) | | | |
| NY St Envrnmntl Facs Corp St Clean Wtr & Drinking Wtr Ref Subord, Ser B | | | |
| NY St Hsg Fin Agy Affordable Hsg, Ser B | | | |
| NY St Thruway Auth Gen Rev Jr Indebtedness Obl Subord, Ser B | | | |
| NY St Thruway Auth Ref, Ser P (c) | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Delta Airls Inc LaGuardia Arpt Terminals C&D Redev, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Ref American Airls Inc John F Kennedy Intl Arpt Proj, AMT | | | |
| NY St Transprtn Dev Corp Spl Rev Terminal 4 JFK Intl Arpt Proj, AMT | | | |
| NY St Urban Dev Corp Rev Personal Income Tax, Ser A | | | |
| | | | |
| Orange & Ulster Cntys NY Boces Sole Supervisory Dist Rans | | | |
| Oyster Bay NY, Ser A, AGM | | | |
| Port Auth of NY & NJ NY Ref Two Hundred, Ninth Ser | | | |
| Rochester NY, Ser I, BANS | | | |
| Southampton Vlg NY Ambulance Bldg | | | |
| Syracuse Regl Arpt Auth NY Sr Arpt Rev Ref, AMT | | | |
| Triborough NY Bridge & Tunnel Auth Revs, Ser A | | | |
| Triborough NY Bridge & Tunnel Auth Revs, Ser A | | | |
| Util Debt Securitization Auth NY Ref Te, Ser 1 | | | |
| Westchester Cnty NY Loc Dev Corp Rev Westchester Med Ctr Oblig Grp Proj, AGM | | | |
| Westchester Cnty NY Sustainable Bond, Ser B | | | |
| Westchester NY Tobacco Asset Securitization Ref Sr, Ser B | | | |
| Western Nassau Cnty NY Wtr Auth Sustainable Bonds, Ser A | | | |
| | | | |
| | |
| | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-2 | | | |
| | |
|
|
| Total Investments — 97.0% | |
| | |
| Net Other Assets and Liabilities — 3.0% | |
| | |
See Notes to Financial Statements
First Trust New York Municipal High Income ETF (FMNY)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) Futures Contracts at January 31, 2024 (See Note 2C - Futures Contracts in the Notes to Financial Statements):
| | | | | Unrealized
Appreciation
(Depreciation)/
Value |
Ultra 10-Year U.S. Treasury Notes | | | | | |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2024, securities noted as such amounted to $358,807 or 2.0% of net assets. |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| When-issued security. The interest rate shown reflects the rate in effect at January 31, 2024. Interest will begin accruing on the security’s first settlement date. |
Abbreviations throughout the Portfolio of Investments: |
| – Assured Guaranty Municipal Corp. |
| – Alternative Minimum Tax |
| |
| – Bond Anticipation Notes |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statements of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Assets and Liabilities
January 31, 2024 (Unaudited)
| First Trust California Municipal High Income ETF
(FCAL) | First Trust New York Municipal High Income ETF
(FMNY) |
| | |
| | |
| | |
Cash segregated as collateral for open futures contracts | | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
Investment securities purchased | | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
Accumulated distributable earnings (loss) | | |
| | |
NET ASSET VALUE, per share | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | |
| | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Operations
For the Six Months Ended January 31, 2024 (Unaudited)
| First Trust California Municipal High Income ETF
(FCAL) | First Trust New York Municipal High Income ETF
(FMNY) |
| | |
| | |
| | |
|
| | |
| | |
| | |
Less fees waived by the investment advisor | | |
| | |
NET INVESTMENT INCOME (LOSS) | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | |
Net realized gain (loss) on: | | |
| | |
| | |
| | |
Net change in unrealized appreciation (depreciation) on: | | |
| | |
| | |
Net change in unrealized appreciation (depreciation) | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Changes in Net Assets
| First Trust California Municipal High Income ETF (FCAL) | First Trust New York Municipal High Income ETF (FMNY) |
| Six Months
Ended
1/31/2024 (Unaudited) | | Six Months
Ended
1/31/2024 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
| | | | |
Total distributions to shareholders | | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights
For a share outstanding throughout each period First Trust California Municipal High Income ETF (FCAL)
| Six Months
Ended
1/31/2024
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Based on average shares outstanding. |
| The Fund received a reimbursement from the advisor in the amount of $219, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust New York Municipal High Income ETF (FMNY)
| Six Months
Ended
1/31/2024
(Unaudited) | | Period
Ended
7/31/2021 (a) |
| | |
Net asset value, beginning of period | | | | |
Income from investment operations: | | | | |
Net investment income (loss) | | | | |
Net realized and unrealized gain (loss) | | | | |
Total from investment operations | | | | |
Distributions paid to shareholders from: | | | | |
| | | | |
| | | | |
| | | | |
Net asset value, end of period | | | | |
| | | | |
|
Ratios to average net assets/supplemental data: | | | | |
Net assets, end of period (in 000’s) | | | | |
Ratio of total expenses to average net assets | | | | |
Ratio of net expenses to average net assets | | | | |
Ratio of net investment income (loss) to average net assets | | | | |
Portfolio turnover rate (e) | | | | |
| Inception date is May 12, 2021, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) 1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of seventeen funds that are offering shares. This report covers the two funds (each a “Fund” and collectively, the “Funds”) listed below:
First Trust California Municipal High Income ETF – (Nasdaq, Inc. ticker “FCAL”) |
First Trust New York Municipal High Income ETF – (NYSE Arca, Inc. ticker “FMNY”) |
FCAL is a diversified series of the Trust. FMNY is a non-diversified series of the Trust.
Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
Each Fund is an actively managed exchange-traded fund. The primary investment objective of each Fund is to seek to provide current income that is exempt from regular federal income taxes and, for FCAL, California income taxes and, for FMNY, New York income taxes. The secondary investment objective of each Fund is long-term capital appreciation. Under normal market conditions, each Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes and, for FCAL, California income taxes and, for FMNY, New York State and New York City income taxes. There can be no assurance that a Fund will achieve its investment objectives. The Funds may not be appropriate for all investors.
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Municipal securities and other debt securities are fair valued on the basis of fair valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) 7)
reference data including market research publications.
Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots.
Exchange-traded futures contracts are valued at the end of the day settlement price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of the security;
6)
the financial statements of the issuer;
7)
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security; and
12)
other relevant factors.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) • Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of January 31, 2024, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued or delayed-delivery securities basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. Each Fund maintains liquid assets with a current value at least equal to the amount of its when-issued or delayed-delivery securities. At January 31, 2024, FCAL and FMNY held $4,631,540 and $273,808, respectively, of when-issued or delayed-delivery securities.
C. Futures Contracts
The Funds may purchase or sell (i.e., are long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Funds are not able to enter into an offsetting transaction, the Funds will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statements of Operations.
Upon entering into a futures contract, a Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statements of Operations. This daily fluctuation in the value of the contract is also known as variation margin and is included in “Variation margin” payable or receivable on the Statements of Assets and Liabilities.
If market conditions change unexpectedly, the Funds may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
Restricted cash segregated as collateral for futures contracts in the amounts of $28,896 and $6,105 for FCAL and FMNY, respectively, is shown as “Cash segregated as collateral for open futures contracts” on the Statements of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) D. Restricted Securities
FCAL invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of January 31, 2024, FCAL held restricted securities as shown in the following table that the Advisor has deemed illiquid pursuant to procedures adopted by the Trust’s Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. FCAL does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are not expressed as a discount to the carrying value of a comparable unrestricted security. There are no unrestricted securities with the same maturity dates and yields for these issuers.
| | | | | | |
| | | | | | |
CA St Muni Fin Auth Chrt Sch Lease Rev Sycamore Acdmy Proj, 5.38%, 07/01/34 | | | | | | |
E. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended July 31, 2023 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Tax-Exempt
Income | Distributions
paid from
Return of
Capital |
First Trust California Municipal High Income ETF | | | | |
First Trust New York Municipal High Income ETF | | | | |
As of July 31, 2023, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust California Municipal High Income ETF | | | |
First Trust New York Municipal High Income ETF | | | |
F. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) In addition, each Fund intends to invest in municipal securities to allow it to pay shareholders “exempt dividends” as defined in the Code.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. For FCAL, taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and state audit. For FMNY, the taxable period ended 2021 and the taxable years ended 2022 and 2023 remain open to federal and state audit. As of January 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2023, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust California Municipal High Income ETF | |
First Trust New York Municipal High Income ETF | |
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended July 31, 2023, the Funds had no net late year ordinary or capital losses.
As of January 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust California Municipal High Income ETF | | | | |
First Trust New York Municipal High Income ETF | | | | |
G. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
Pursuant to the Investment Management Agreements between the Trust and the Advisor, First Trust manages the investment of each Fund’s assets and is responsible for the expenses of each Fund, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreements, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. Prior to October 16, 2023, First Trust also provided fund reporting services to the Funds for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule, provided that FMNY is not eligible for any breakpoints until the termination of the following Fee Waiver Agreement:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited)
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
The Trust’s Board of Trustees and the Advisor have entered into a Fee Waiver Agreement for FMNY pursuant to which the Advisor contractually agreed to waive management fees of 0.15% of average daily net assets until May 11, 2024. The Fee Waiver Agreement for FMNY may be terminated by action of the Trust’s Board of Trustees at any time upon 60 days’ written notice by the Trust on behalf of FMNY or by the Advisor only after May 11, 2024. First Trust does not have the right to recover the fees waived under the Fee Waiver Agreement. During the six months ended January 31, 2024, the Advisor waived fees of $10,593 for FMNY.
Effective October 16, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to October 16, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BBH was responsible for custody of each Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for each Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended January 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust California Municipal High Income ETF | | |
First Trust New York Municipal High Income ETF | | |
For the six months ended January 31, 2024, the Funds had no in-kind transactions.
5. Borrowings
As of January 31, 2024, the Trust, on behalf of FCAL, along with First Trust Series Fund and First Trust Exchange-Traded Fund IV has a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charges a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans and an agency fee. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that FCAL accesses the credit line, there would also be an interest fee charged. FCAL did not have any borrowings outstanding during the six months ended January 31, 2024.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) 6. Derivative Transactions
The following table presents the types of derivatives held by each Fund at January 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statements of Assets and Liabilities.
| | | |
| | Statements of Assets and
Liabilities Location | | Statements of Assets and
Liabilities Location | |
| | | | | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| | | | | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in each Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statements of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the six months ended January 31, 2024, on each Fund’s derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statements of Operations Location | | |
Interest Rate Risk Exposure | | |
Net realized gain (loss) on futures contracts | | |
Net change in unrealized appreciation (depreciation) on futures contracts | | |
During the six months ended January 31, 2024, for FCAL, the notional value of futures contracts opened and closed were $38,994,618 and $32,005,485, respectively.
During the six months ended January 31, 2024, for FMNY, the notional value of futures contracts opened and closed were $1,452,953 and $1,681,360, respectively.
The Funds do not have the right to offset financial assets and financial liabilities related to futures contracts on the Statements of Assets and Liabilities.
7. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
8. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2024.
9. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
10. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there was the following subsequent event:
The Trust, on behalf of FCAL, along with First Trust Series Fund and First Trust Exchange-Traded Fund IV, terminated the credit facility that it had with Scotia on February 28, 2024. Effective February 28, 2024, the Trust, on behalf of FCAL, along with First Trust Series Fund, First Trust Exchange-Traded Fund IV and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNYM as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620,000,000 and such commitment amount may be increased up to $700,000,000 with the consent of one or more lenders. BNYM charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans. First Trust allocates the commitment fee amongst the funds that have access to the credit line. To the extent that FCAL accesses the credit line, there would also be an interest fee charged.
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
|
For the Six Months Ended
January 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Municipal High Income ETF (FMHI) |
First Trust Municipal High Income ETF (FMHI)
Semi-Annual Report
January 31, 2024
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (First Trust Municipal High Income ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that the Fund will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
First Trust Municipal High Income ETF (FMHI)
Semi-Annual Letter from the Chairman and CEO
January 31, 2024
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for the First Trust Municipal High Income ETF (the “Fund”), which contains detailed information about the Fund for the six-month period ended January 31, 2024.
While there were many noteworthy financial and economic developments over the past six months, perhaps chief among them was the December 2023 statement from the Federal Reserve (the “Fed”). After voting on December 13 to keep the Federal Funds target rate unchanged, the Fed revealed that it was planning up to three interest rate cuts totaling 75 basis points in 2024. The timing of the Fed’s statement came as a surprise to many, especially given its September 2023 announcement that its policy rate was likely to remain “higher for longer” due to stubbornly high inflation.
With December’s announcement effectively taking further interest rate hikes off the table, the discussion now focuses on the timing of the Fed’s cuts. As expected, there are numerous opinions. At the end of December 2023, the futures market for the Federal Funds target rate indicated an 84.3% chance that the Fed would cut its policy rate at its March 2024 meeting. Since then, better than expected economic data and a re-acceleration in the rate of inflation have changed the calculus substantially. As of January 31, 2024, the same futures market indicated a 34.9% chance of the first interest rate cut occurring in March, representing a decline of 49.4 percentage points from where it stood last month.
Falling interest rates could be a boon to an already exuberant U.S. consumer. Consumer sentiment is surging, and shoppers are spending in droves. The University of Michigan’s “Survey of Consumers” revealed that the metric rose by 21.7% on a year-over-year basis in January 2024, reaching its highest level since July 2021. Adobe Analytics reported that a record $222.1 billion was spent online over the 2023 holiday shopping season (which runs from November 1 through December 31), up from $211.7 billion over the same period in 2022. In addition, real discretionary consumer spending rose to $10.9 trillion in 2023, an increase of $1.2 trillion from the $9.7 trillion in real discretionary spending in 2019 (pre-COVID-19). That said, there is data that suggests all this spending may not be sustainable. The Federal Reserve Bank of New York reported that aggregate household debt rose to a record $17.5 trillion at the end of 2023, while the share of credit card balances that moved into serious delinquency (90 days or more past due) rose to 6.3% in the fourth quarter of the year. The last time this share of credit card balances were seriously delinquent was in the second quarter of 2011.
Keep in mind that higher interest rates have been very good for some investors. Take the large portion of cash in money market funds, CDs, and even investments in the broader fixed income markets, as an example. Higher interest rates and recent disinflation have created an environment where, for the first time in many years, these assets are earning a positive real return. By the Fed’s own admission, interest rates are not likely to remain at these levels for long. For the time being, however, investors with capital on hand are being rewarded.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
First Trust Municipal High Income ETF (FMHI)
The First Trust Municipal High Income ETF’s (the “Fund”) primary investment objective is to provide federally tax-exempt income, and its secondary objective is long-term capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes (“Municipal Securities”). Under normal market conditions, the Fund invests at least 50% of its net assets in Municipal Securities that are, at the time of investment, rated below investment grade by at least one nationally recognized statistical rating organization rating such securities (or Municipal Securities that are unrated and determined by the Fund’s advisor to be of comparable quality), commonly referred to as “high yield” or “junk” bonds. The Fund lists and principally trades its shares on Nasdaq, Inc. under the ticker symbol “FMHI.”
|
| | | Average Annual Total Returns | |
| | | | Inception
(11/1/17)
to 1/31/24 | | Inception
(11/1/17)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Bloomberg Municipal Bond Index | | | | | | |
| | | | | | |
Total returns for the period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived by the Advisor.
The Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under Securities and Exchange Commission rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of the Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
| The Blended Benchmark consists of the following two indexes: 50% of the Bloomberg High Yield 10-Year Municipal Index (8-12 years) which is comprised of bonds with a final maturity between 8 and 12 years that are part of the Bloomberg Municipal Bond High Yield Index; and 50% of the Bloomberg Revenue 10-Year Municipal Index (8-12 years), which is comprised of revenue bonds that have a final maturity between 8 and 12 years that are part of the Bloomberg Municipal Bond Index. Indexes do not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the index performance shown. Indexes are unmanaged and an investor cannot invest directly in an index. The Blended Benchmark returns are calculated by using the monthly return of the two indices during each period shown above. At the beginning of each month the two indices are rebalanced to a 50-50 ratio to account for divergence from that ratio that occurred during the course of each month. The monthly returns are then compounded for each period shown above, giving the performance for the Blended Benchmark for each period shown above. |
Fund Performance Overview (Unaudited) (Continued)
First Trust Municipal High Income ETF (FMHI) (Continued)
| % of Total
Investments
(including cash) |
| |
Industrial Development Bond | |
Continuing Care Retirement Communities | |
| |
| |
| |
Government Obligation Bond - Unlimited Tax | |
| |
Government Obligation Bond - Limited Tax | |
| |
| |
| |
| |
| |
| |
Certificates of Participation | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Pre-refunded/Escrowed-to-maturity | |
| |
| |
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net Other Assets and Liabilities(3) | |
| |
| Amount is less than 0.1%. |
| The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
| Includes variation margin on futures contracts. |
Fund Performance Overview (Unaudited) (Continued)
First Trust Municipal High Income ETF (FMHI) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
First Trust Municipal High Income ETF (FMHI)Semi-Annual ReportJanuary 31, 2024 (Unaudited) Advisor
First Trust Advisors L.P. (“First Trust” or the “Advisor”) is the investment advisor to the First Trust Municipal High Income ETF (the “Fund”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Portfolio Management Team
The following persons serve as portfolio managers of the Fund:
Tom Byron, Senior Vice President, Senior Portfolio Manager
Johnathan N. Wilhelm, Senior Vice President, Senior Portfolio Manager
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Tom Byron has served as portfolio manager since 2022 and Johnathan N. Wilhelm has served as portfolio manager since 2017.
First Trust Municipal High Income ETF (FMHI)Understanding Your Fund ExpensesJanuary 31, 2024 (Unaudited) As a shareholder of First Trust Municipal High Income ETF (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended January 31, 2024.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
August 1, 2023 | Ending
Account Value
January 31, 2024 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust Municipal High Income ETF (FMHI) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (August 1, 2023 through January 31, 2024), multiplied by 184/366 (to reflect the six-month period). |
First Trust Municipal High Income ETF (FMHI)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | | | |
|
| | |
| Black Belt Energy Gas Dist AL Gas Proj Rev Proj No. 6, Ser B (Mandatory put 12/01/26) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 (Mandatory put 06/01/29) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser F (Mandatory put 12/01/28) | | | |
| Energy SE AL A Cooperative Dist Energy Sply Rev, Ser A-1 (Mandatory put 01/01/31) | | | |
| Jefferson Cnty AL Swr Rev Warrants Ref Warrants | | | |
| SE Energy Auth AL Cmdy Sply Rev Proj #1, Ser A (Mandatory put 10/01/28) | | | |
| | |
| | |
| AZ St Indl Dev Auth Edu Rev Acads of Math & Science Proj (a) | | | |
| AZ St Indl Dev Auth Edu Rev Acads of Math & Science Proj (a) | | | |
| AZ St Indl Dev Auth Edu Rev Acads of Math & Science Proj, Ser B (a) | | | |
| AZ St Indl Dev Auth Edu Rev Doral Acdmy NV Fire Mesa & Red Rock Cmps Proj, Ser A | | | |
| AZ St Indl Dev Auth Edu Rev Doral Acdmy NV Pebble, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Lone Mountain Cmps Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Pinecrest Acdmy Horizon Inspirada & St Rose Cmps, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Sch Projs, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Sch Projs, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Sch Projs, Ser D (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Sch Projs, Ser D (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Somerset Acdmy of LV Aliante & Skye Canyon Cmps Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Somerset Acdmy of LV Aliante & Skye Canyon Cmps Proj, Ser A (a) | | | |
| Glendale AZ Indl Dev Auth Sr Living Facs Rev Royal Oaks Inspirata Pointe Proj, Ser A | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Legacy Trad Schs Proj Auth, Ser B (a) | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Legacy Trad Schs Proj Auth, Ser B (a) | | | |
| Maricopa Cnty Indl Dev Auth Exempt Facs Rev Comml Metals Company Proj, AMT (a) | | | |
| Phoenix AZ Indl Dev Auth Edu Rev Ref Fac Legacy Trad Schs Projs (a) | | | |
| Phoenix AZ Indl Dev Auth Hotel Rev Sr Falcon Properties LLC Proj, Ser A (a) | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Ref Downtown Phoenix Stdt Hsg LLC AZ St Univ Proj, Ser A | | | |
| Pima Cnty AZ Indl Dev Auth Sr Living Rev La Posada at Pusch Ridge Proj, Ser A (a) | | | |
| | |
| | |
| AR Dev Fin Auth Envrnmntl Rev Sustainable Bond United States Steel Corp Proj, AMT | | | |
| AR Dev Fin Auth Envrnmntl Rev Sustainable Bond US Steel Corp Proj, AMT | | | |
| AR St Dev Fin Auth Indl Dev Rev Sustainable Bonds Hybar Steel Proj, Ser A, AMT (a) | | | |
| | |
| | |
| CA Pub Fin Auth Sr Living Rev Enso Vlg Proj Sustainable Bond, Ser B (a) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Value Schs, Ser A (a) | | | |
| CA St Hlth Facs Fing Auth Rev El Camino Hosp | | | |
| CA St Muni Fin Auth Chrt Sch Rev Palmdale Aerospace Acdmy Proj, Ser A (a) | | | |
| CA St Muni Fin Auth Chrt Sch Rev, Ser A (a) | | | |
| CA St Muni Fin Auth Rev CA Baptist Univ, Ser A (a) | | | |
| CA St Muni Fin Auth Rev Ref Eisenhower Med Ctr, Ser A | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Spl Fac Rev United Airls Inc Proj, AMT | | | |
| CA St Muni Fin Auth Spl Tax Rev Bold Prog, Ser B | | | |
| CA St Poll Control Fing Auth Wtr Furnishing Rev Plant Bonds, AMT (a) | | | |
| CA St Poll Control Fing Auth Wtr Furnishing Rev Plant Bonds, AMT (a) | | | |
| CA St Sch Fin Auth Chrt Sch Rev Ref Classical Academies Oceanside Proj, Ser A (a) | | | |
| CA Stwd Cmntys Dev Auth Rev Loma Linda Univ Med Ctr,
Ser A (a) | | | |
| CSCDA Cmnty Impt Auth CA Essential Hsg Rev The Link Glendale Sustainable Bonds, Ser A-2 (a) | | | |
| CSCDA Cmnty Impt Auth CA Essential Hsg Rev Union S Bay Sustainable Bonds, Ser A-2 (a) | | | |
| Golden St Tobacco Securitization Corp CA Tobacco Stlmt Ref Tobacco Stlmt Asset Backed Bonds, Ser A-1 | | | |
| Morongo Band of Mission Indians CA Rev Ref, Ser B (a) | | | |
| Palm Desert CA Spl Tax Ref Univ Park | | | |
| Riverside CA Unif Sch Dist Impt Area No 2 | | | |
| Roseville CA Spl Tax The Ranch at Sierra Vista Cmnty Facs Dt No. 1 | | | |
| Roseville CA Spl Tax The Ranch at Sierra Vista Cmnty Facs Dt No. 1 | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev, Ser A, AMT | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1, Ser 2021 | | | |
| San Luis Obispo Cnty CA Fing Auth Lease Rev Multiple Capital Projs Ref, Ser A | | | |
| | |
| | |
| Allison Vly Met Dist #2 CO Ref | | | |
| Baseline Met Dist #1 CO Spl Rev, Ser A | | | |
| Brighton Crossing Met Dist #6 CO, Ser A | | | |
| Cascade Ridge Met Dist CO | | | |
| Chambers Highpoint Met Dist #2 CO | | | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Skyview Acdmy Proj (a) | | | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Univ Lab Bldg Corp (a) | | | |
| CO St Hlth Facs Auth Rev Ref Christian Living Neighborhoods Proj | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Meadows Retmnt Cmnty Proj, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Proj, Ser 2023A | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Proj, Ser 2023A | | | |
| CO St Hlth Facs Auth Rev Sr Living Ralston Creek Arvada Proj, Ser A (b) (c) | | | |
| Denver City & Cnty CO Arpt Rev Ref, Ser D, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref, Ser D, AMT | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Denver CO Intl Busn Ctr CO Met Dist #1 Subord, Ser B | | | |
| Elbert & Hwy 86 CO Comml Spl Rev & Tax Supported Ref Sr Bonds, Ser A (a) | | | |
| Elbert & Hwy 86 CO Comml Spl Rev & Tax Supported Ref Sr Bonds, Ser A (a) | | | |
| Four Corners Busn Impt Dist CO Ltd Tax Supported | | | |
| Grandview Reserve Met Dist #3 CO Sr Bonds, Ser A | | | |
| Jefferson Ctr CO Met Dist #1 Spl Rev, Ser A-2 | | | |
| Lanterns Met Dist #3, Ser A-1 | | | |
| Meridian Ranch Met Dist 2018 Subdistrict CO | | | |
| Mirabelle Met Dist #2 CO Sr, Ser A | | | |
| Mountain Brook Met Dist CO | | | |
| Peak Met Dist #1 CO, Ser A (a) | | | |
| Peak Met Dist #1 CO, Ser A (a) | | | |
| Pinon Pines Met Dist #2 CO MDD | | | |
| Prairie Ctr CO Met Dist #3 Ltd Property Tax Supported Pri Ref,
Ser A (a) | | | |
| Prairie Ctr Met Dist #7 CO | | | |
| Siena Lake Met Dist CO (b) | | | |
| Thompson Crossing Met Dist #4 CO Ref | | | |
| Trails at Crowfoot Met Dist #3 CO Sr Ser, Ser A | | | |
| W Meadow Met Dist CO Ref Sr Bonds, Ser A (a) | | | |
| | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Bridgeport CT, Ser A, BAM | | | |
| CT St Hlth & Eductnl Facs Auth Rev Covenant Home Inc, Ser B | | | |
| CT St Hlth & Eductnl Facs Auth Rev Hartford Hlthcare, Ser A | | | |
| CT St Hlth & Eductnl Facs Auth Rev Trinity Hlth Corp | | | |
| Harbor Point CT Infra Impt Dist Spl Oblig Rev Ref Harbor Point Proj Ltd (a) | | | |
| | |
| | |
| Millsboro DE Spl Oblig Ref Plantation Lakes Spl Dev Dist (a) | | | |
| | |
| Alachua Cnty FL Hlth Facs Auth CCRC Ref Oak Hammock at the Univ of FL Inc Proj | | | |
| Ave Maria FL Stewardship Cmnty Dist Capital Impt Rev Maple Ridge Phase 4 Proj (a) | | | |
| Ave Maria FL Stewardship Cmnty Dist Capital Impt Rev Maple Ridge Phase 4 Proj (a) | | | |
| Ave Maria FL Stewardship Cmnty Dist Capital Impt Rev Phase 4 Master Impt Proj (a) | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Assmt Area 3A (a) | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Proj, Ser 2021 | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Proj, Ser 2022 | | | |
| Berry Bay CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Bexley CDD FL Spl Assmnt Rev | | | |
| Bridgewater N Cmnty Dev Dist FL Capital Impt Rev | | | |
| Capital Trust Agy FL Eductnl Facs Rev Academir Chrt Schs Inc Proj, Ser A (a) | | | |
| Capital Trust Agy FL Eductnl Facs Rev Academir Chrt Schs Inc Proj, Ser A (a) | | | |
| Capital Trust Agy FL Eductnl Facs Rev Liza Jackson Preparatory Sch Inc Proj, Ser A | | | |
| Capital Trust Agy FL Eductnl Facs Rev Liza Jackson Preparatory Sch Inc Proj, Ser A | | | |
| Charlotte Cnty FL Indl Dev Auth Util Sys Rev Town & Country Utils Proj (a) | | | |
| Charlotte Cnty FL Indl Dev Auth Util Sys Rev Town & Country Utils Proj, Ser A, AMT (a) | | | |
| Charlotte Cnty FL Indl Dev Auth Util Sys Rev Town & Country Utils Proj, Ser A, AMT (a) | | | |
| Coco Palms FL CDD Spl Assmnt | | | |
| Coco Palms FL CDD Spl Assmnt | | | |
| Connerton E CDD FL Spl Assmnt Area One | | | |
| Cypress Bluff CDD FL Spl Assmnt Del Web Proj, Ser A (a) | | | |
| Edgewater E CDD FL Spl Assmnt Rev Assmnt Area Two | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area #2 | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area 1, Ser A-1 (a) | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area 1, Ser A-1 (a) | | | |
| Fallschase Cmnty Dev Dist FL Spl Assmnt | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| FL St Dev Fin Corp Eductnl Facs Rev Ref Global Outreach Chrt Acdmy Proj, Ser A (a) | | | |
| FL St Dev Fin Corp Sol Wst Disp Rev Var Waste Pro USA Inc Proj, AMT (Mandatory put 07/01/26) (a) | | | |
| FL St Dev Fin Corp Sr Living Rev Ref Mayflower Retmnt Cmnty Proj, Ser A (a) | | | |
| Forest Lake Cmnty Dev Dist FL Spl Assmnt Area 1 Proj (a) | | | |
| Fort Lauderdale FL Wtr & Swr Rev Enabling Wks Proj, Ser A | | | |
| Gulfstream Polo Cmnty Dev Dist FL Spl Assmnt Phase 2 Proj | | | |
| Halifax FL Hosp Med Ctr Ref | | | |
| Hills Minneola Cmnty Dev Dist FL Spl Assmnt Rev S Parcel Assmnt Area (a) | | | |
| Lakewood Ranch FL Stewardship Dist Spl Assmnt Rev N E Sector Proj Phase 1A | | | |
| Lakewood Ranch FL Stewardship Dist Spl Assmnt Rev Stewardship Dist Azario Proj | | | |
| Lee Cnty FL Indl Dev Auth Hlthcare Facs Rev Shell Point Waterside Hlth Proj | | | |
| LTC Ranch W Rsdl Cmnty Dev Dist Spl Assmnt Rev Assmnt Area One Proj, Ser A | | | |
| Miami-Dade Cnty FL Aviation Rev Ref, Ser A, AMT | | | |
| Mirada II Cmnty Dev Dist FL Cap Impt Rev | | | |
| N Park Isle Cmnty Dev Dist FL Spl Assmnt Rev Assmnt Area One | | | |
| N Springs FL Impt Dist Parkland Bay Assmt Area (a) | | | |
| Old Hickory CDD FL Spl Assmnt Spl Asmt | | | |
| Parkland Preserve CDD FL Spl Assmnt Rev 2019A Spl Assmnts, Ser A | | | |
| Pine Isle Cmnty Dev Dist FL Spl Assmnt 2021 Proj (a) | | | |
| Polk Cnty FL Indl Dev Auth Mineral Dev LLC Secondary Phosphate Tailings Recovery Proj (d) | | | |
| Pompano Beach FL Rev John Knox Vlg Proj, Ser A | | | |
| Prosperity Lakes Cmnty Dev Dist FL Spl Assmnt Area One | | | |
| Prosperity Lakes Cmnty Dev Dist FL Spl Assmnt Area One | | | |
| Reunion E FL CDD Spl Assmnt, Ser 2021 | | | |
| Rivington CDD FL Spl Assmnt Rev Assmnt Area | | | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| Sawyers Landing CDD FL Spl Assmnt Rev | | | |
| Sawyers Landing CDD FL Spl Assmnt Rev | | | |
| SE Overtown Park W Cmnty Redev Agy FL Tax, Ser A-1 (a) | | | |
| Shell Point Cmnty Dev Dist FL Spl Assmnt (a) | | | |
| Shingle Creek At Bronson CDD FL Spl Assmnt | | | |
| Six Mile Creek FL CDD Capital Impt Rev Assmnt Area 3 Phase 1 | | | |
| Stillwater CDD FL Sp Assmnt Spl Assmt 2021 Proj (a) | | | |
| The Heights CDD FL Spl Assmnt Rev CDD | | | |
| Triple Creek FL CDD Spl Assmnt Vlgs Q&R Proj (a) | | | |
| Trout Creek CDD FL Capital Impt Rev | | | |
| Villamar CDD FL Spl Assmnt | | | |
| W Vlgs FL Impt Dist Ref Spl Assmt Unit Dev #1 | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Westside FL CDD Spl Assmnt Rev Ref (a) | | | |
| Westview S CDD FL Spl Assmnt Area One 2023 Proj Area | | | |
| Wildblue CDD FL Spl Assmnt (a) | | | |
| | |
| | |
| Atlanta GA Arpt Passenger Fac Charge Rev Arpt Rev Subord, Ser D, AMT | | | |
| Bartow Cnty GA Dev Auth Solid Waste Disp Fac Rev Var GA Pwr Co Plt Bowen Proj, AMT (e) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Adjustable GA Pwr Co Plant Vogtle Proj Remk (e) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Vogtle, 1st Ser (e) | | | |
| Cobb Cnty GA Dev Auth Chartersch Rev NW Classical Acdmy Proj, Ser A (a) | | | |
| Cobb Cnty GA Dev Auth Chartersch Rev NW Classical Acdmy Proj, Ser A (a) | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser A | | | |
| Fulton Cnty GA Rsdl Care Facs Elderly Auth Retmnt Fac Rev Ref Lenbrook Sq Fdtn Inc | | | |
| Fulton Cnty GA Rsdl Care Facs Elderly Auth Retmnt Fac Rev Ref Lenbrook Sq Fdtn Inc | | | |
| Geo L Smith II GA Congress Ctr Auth Convention Ctr Hotel Second Tier, Ser A (a) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 12/01/29) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser C (Mandatory put 09/01/26) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser C (Mandatory put 12/01/28) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser C (Mandatory put 09/01/30) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser D (Mandatory put 12/01/30) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser E-1 (Mandatory put 06/01/31) | | | |
| Muni Elec Auth of GA Plant Vogtle Units 3&4 Proj J, Ser A, AGM | | | |
| | |
| | |
| Guam Govt Busn Privilege Tax Rev Ref, Ser D | | | |
| Guam Govt Wtrwks Auth Wtr & Wstwtr Sys Rev, Ser A | | | |
| | |
| | |
| ID Falls ID Auditorium Dist Annual Approp Ctfs, COPS (a) | | | |
| ID St Hlth Facs Auth Rev Ref Madison Memorial Hosp | | | |
| ID St Hlth Facs Auth Rev Ref Madison Memorial Hosp | | | |
| | |
| | |
| Chicago IL Brd of Edu Proj, Ser C | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Chicago IL Brd of Edu Ref Dedicated, Ser C | | | |
| Chicago IL Brd of Edu Ref, Ser B | | | |
| Chicago IL Brd of Edu Sustainable Bond, Ser E | | | |
| Chicago IL Brd of Edu, Ser A | | | |
| Chicago IL Brd of Edu, Ser D | | | |
| Chicago IL Chicago Wks, Ser A | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref Sr Lien, Ser A, AMT | | | |
| Chicago IL Park Dist Ref, Ser A, BAM | | | |
| Chicago IL Ref 2003B Remk | | | |
| Chicago IL Ref, Ser C, CABS | | | |
| | | | |
| | | | |
| | | | |
| IL St Fin Auth Chrt Sch Rev Ref & Impt Chicago Intl Chrt Sch Proj | | | |
| IL St Fin Auth Chrt Sch Rev Ref & Impt Chicago Intl Chrt Sch Proj | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| | | | |
| | | | |
| Lincolnwood IL Tax Incr Allocation Rev Nts Dist 1860 Dev Proj, Ser A, COPS (a) | | | |
| S Wstrn IL Dev Auth Envrnmntl Impt Rev US Steel Corp Proj | | | |
| | |
| | |
| Fort Wayne IN Mf Hsg Rev Silver Birch at Cook Road (a) | | | |
| IN Fin Auth Midwestern Disaster Relief Rev OH Vly Elec Corp Proj Remk, Ser A | | | |
| IN St Fin Auth Envrnmntl Rev Ref Var Duke Energy IN Inc Proj Remk, Ser A-1, AMT (Mandatory put 06/01/32) | | | |
| IN St Fin Auth Hosp Rev Reid Hlth, AGM | | | |
| IN St Fin Auth Rev Eductnl Facs Rock Creek Cmnty Acdmy Proj, Ser A (d) | | | |
| Indianapolis IN Loc Pub Impt Bond Bank Sr Convention Ctr Hotel, Ser E | | | |
| Terre Haute IN Mf Hsg Rev Silver Birch of Terre Haute Proj | | | |
| | |
| | |
| IA St Fin Auth Midwstrn Disaster Area Rev Alcoa Inc Proj | | | |
| IA St Fin Auth Midwstrn Disaster Area Rev Ref IA Fertilizer Company Proj | | | |
| IA St Fin Auth Midwstrn Disaster Area Rev Ref IA Fertilizer Company Proj (Mandatory put 12/01/42) | | | |
| | |
| | |
| Goddard KS Sales Tax Spl Oblg Rev Ref Olympic Park Star Bond Proj | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Lenexa KS Hlth Care Fac Rev Ref Lakeview Vlg Inc, Ser A | | | |
| Shawnee Cnty KS Pub Bldg Commn Rev Corrections and Parks & Rec Projs | | | |
| Wyandotte Cnty KS Kansas City Unif Govt Spl Oblg Rev Ref Vlg E Proj Areas 2B 3 5 (a) | | | |
| | |
| | |
| Boyle Cnty KY Eductnl Facs Rev Ref Centre Clg, Ser A | | | |
| Henderson KY Exempt Facs Rev Pratt Paper LLC Proj, Ser A, AMT (a) | | | |
| KY St Econ Dev Fin Auth Ref Owensboro Hlth, Ser A | | | |
| KY St Pub Energy Auth Gas Sply Rev Ref, Ser A-1 (Mandatory put 02/01/32) | | | |
| KY St Pub Energy Auth Gas Sply Rev Var, Ser C (Mandatory put 02/01/28) | | | |
| KY St Univ KY St Univ Proj, BAM, COPS | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Norton Hlthcare Inc, Ser A | | | |
| Meade Cnty KY Indl Bldg Rev Var Nucor Steel Brandenburg Proj Sustainable Bond, Ser B-1 (e) | | | |
| | |
| | |
| LA St Loc Govt Envrnmntl Facs & Cmnty Dev Auth Rev Ref Westlake Chemical Corp Proj Remk | | | |
| | | | |
| Saint James Parish LA Rev NuStar Logistics LP Proj Remk, Ser 2010 (a) | | | |
| Saint James Parish LA Rev NuStar Logistics LP Proj Remk, Ser 2010A (a) | | | |
| Saint James Parish LA Rev Var NuStar Logistics LP Proj Remk, Ser 2010B (Mandatory put 06/01/30) (a) | | | |
| | |
| | |
| ME St Fin Auth Sol Wst Disp Rev Casella Waste Sys Proj, AMT (Mandatory put 08/01/25) (a) | | | |
| | |
| Baltimore MD Spl Oblig Ref E Baltimore Rsrch Park Proj, Ser A | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (a) | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (a) | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (a) | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (a) | | | |
| Frederick Cnty MD Tax Incr & Spl Tax Ref Jefferson Technology Park Proj, Ser B (a) | | | |
| MD St Econ Dev Corp Stdt Hsg Rev Morgan St Univ Proj, Ser A | | | |
| | |
| | |
| MA St Dev Fin Agy Rev Linden Ponds Inc Fac (a) | | | |
| MA St Dev Fin Agy Rev Ref Boston Med Ctr Sustainable Bonds, Ser G | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| Massachusetts (Continued) | |
| MA St Dev Fin Agy Rev Ref Salem Cmnty Corp | | | |
| MA St Dev Fin Agy Rev Umass Dartmouth Stdt Hsg Proj | | | |
| | |
| | |
| Detroit MI Downtown Dev Auth Tax Incr Rev Ref Catalyst Dev Proj, Ser A, AGM | | | |
| Detroit MI Sustainable Bonds, Ser A | | | |
| Detroit MI Sustainable Bonds, Ser A | | | |
| Great Lakes MI Wtr Auth Wtr Sply Sys Rev Sr Lien Bonds, Ser B | | | |
| MI St Fin Auth Rev Henry Ford Hlth Sys, Ser A | | | |
| MI St Strategic Fund Ltd Oblg Rev Var Sustainable Bond Recycled Brd Machine Proj, AMT (Mandatory put 10/01/26) | | | |
| | |
| | |
| Minneapolis MN Stdt Hsg Rev Riverton Cmnty Hsg Proj (a) | | | |
| Saint Paul MN Hsg & Redev Auth Chrt Sch Lease Rev Ref Hgr Ground Acdmy Proj | | | |
| Saint Paul MN Hsg & Redev Auth Chrt Sch Lease Rev Ref, Ser A | | | |
| Woodbury MN Chrt Sch Lease Rev Woodbury Leadership Proj, Ser A | | | |
| Woodbury MN Chrt Sch Lease Rev Woodbury Leadership Proj, Ser A | | | |
| | |
| | |
| MS St Busn Fin Corp Sol Wst Disp Rev Adj MS Pwr Co Proj Remk, AMT (e) | | | |
| MS St Busn Fin Corp Sol Wst Disp Rev Adj Ref MS Pwr Co Proj Remk, AMT (e) | | | |
| | |
| | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svc Projs Svcs Projs, Ser A, Ser ASR | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svc Projs Svcs Projs, Ser A, Ser ASR | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Med Rsrch Lutheran Svcs, Ser A | | | |
| MO St Hlth & Eductnl Facs Auth Ref Lutheran Sr Svcs Projs, Ser B | | | |
| Taney Cnty MO Indl Dev Auth Sales Tax Rev Big Cedar Infra Proj (a) | | | |
| | |
| | |
| Henderson NV Loc Impt Dists Rainbow Canyon Phase II Roject | | | |
| Henderson NV Loc Impt Dists Rainbow Canyon Phase II Roject | | | |
| Las Vegas NV Spl Assmnt Dist #817 Spl Impt Dt# 817 Summerlin Vlg 29 | | | |
| Las Vegas NV Spl Assmnt Dist #817 Spl Impt Dt# 817 Summerlin Vlg 29 | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| N Las Vegas NV Loc Impt Vly Vista Spl Impt Dist #64 | | | |
| NV Dept of Busn & Ind NV Doral Acdmy, Ser A | | | |
| | |
| | |
| Natl Fin Auth NH Rev Ref Sustainable Bond, Ser B, AMT (Mandatory put 07/02/40) (a) | | | |
| | |
| NJ St Econ Dev Auth Spl Fac Rev Continental Airls Inc Proj Remk, Ser B, AMT | | | |
| NJ St Econ Dev Auth Spl Fac Rev Ref Port Newark Container Terminal LLC Proj, AMT | | | |
| NJ St Hgr Edu Asst Auth Stdt Loan Rev, Ser 1A, AMT | | | |
| NJ St Transprtn Trust Fund Auth Fun Auth Transprtn Prog Bonds, Ser CC | | | |
| NJ St Transprtn Trust Fund Auth Ref Transprtn Sys, Ser A | | | |
| | |
| | |
| Winrock Town Ctr NM Tax Incr Dev Dist #1 Ref Sr Lien (a) | | | |
| Winrock Town Ctr NM Tax Incr Dev Dist #1 Ref Sr Lien (a) | | | |
| Winrock Town Ctr NM Tax Incr Dev Dist #1 Ref Sr Lien (a) | | | |
| | |
| | |
| Build NYC Res Corp NY Rev Sustainable Bond Kipp NYC Pub Sch Facs Canal W Proj | | | |
| Dutchess Cnty NY Loc Dev Corp Mf Mtebs Sustainable Bonds Tomopkins Terrace Hsg LP Proj | | | |
| Nassau Cnty NY Loc Econ Asst Corp Edl Rev Roosevelt Children Acdmy Chrt Sch Proj, Ser A | | | |
| New York City NY Indl Dev Agy Rev Liberty 123 Wash Proj Remk (e) | | | |
| New York City NY Muni Wtr Fin Auth Wtr & Swr Sys Rev Ref 2nd Gen Resolution Fiscal 2018 Block 4, Ser AA | | | |
| New York City NY Transitional Fin Auth Rev Future Tax Secured Subord Bonds, Ser C-1 | | | |
| NY NY Adjustable Fiscal 2020, Subser B-3 (e) | | | |
| | | | |
| NY St Dorm Auth St Personal Income Tax Rev Ref, Ser A | | | |
| NY St Transprtn Dev Corp Exempt Fac Rev NY St Thruway Srvc Areas Proj, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Delta Airls Inc LaGuardia Arpt Terminals C&D Redev, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Delta Airls Inc LaGuardia Arpt Terminals C&D Redev, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Ref American Airls Inc John F Kennedy Intl Arpt Proj, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Ref John F. Kennedy Intl Arpt Proj, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt Terminal One Prj, AMT | | | |
| Oyster Bay NY, Ser A, AGM | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Tsasc Inc NY Tsasc Inc Rev Ref Turbo Sub, Ser B | | | |
| Westchester Cnty NY Loc Dev Corp Rev Ref Miriam Osborn Memorial Home Assn Proj | | | |
| Westchester Cnty NY Loc Dev Corp Rev Ref Pur Sr Learning Cmnty Inc Proj, Ser A (a) | | | |
| Westchester NY Tobacco Asset Securitization Ref Sr, Ser B | | | |
| | |
| | |
| NC St Med Care Commn Hlth Care Facs Rev Lutheran Svcs for The Aging Ref, Ser A | | | |
| NC St Med Care Commn Hlth Care Facs Rev Ref Pennybyrn at Maryfield | | | |
| NC St Med Care Commn Retmnt Facs Rev Pennybyrn at Maryfield Proj, Ser A | | | |
| NC St Med Care Commn Retmnt Facs Rev Ref Southminster Inc | | | |
| NC St Med Care Commn Retmnt Facs Rev The Forest at Duke Proj | | | |
| | |
| | |
| | | | |
| | |
| Buckeye OH Tobacco Stlmt Fing Auth Ref Sr, Class 2, Ser B-2 | | | |
| Cleveland Cuyahoga Cnty OH Port Auth Tax Incr Fing Rev Ref Sr Flats E Bank Proj, Ser A (a) | | | |
| Franklin Cnty OH Rev Trinity Hlth Credit Grp OH, Ser A | | | |
| Hamilton Cnty OH Hlth Care Rev Life Enriching Cmntys Proj, Ser A | | | |
| Hamilton Cnty OH Hlth Care Rev Life Enriching Cmntys Proj, Ser A | | | |
| OH St Air Quality Dev Auth Exempt Facs Rev AMG Vanadium Proj, AMT (a) | | | |
| OH St Hgr Eductnl Fac Commn Ref Rev Judson Oblig Grp 2020 Proj, Ser A | | | |
| OH St Hosp Rev Ref Var Univ Hosps Hlth Sys Inc, Ser C (e) | | | |
| Port of Gtr Cincinnati Dev Auth OH Rev (a) | | | |
| | |
| | |
| OK St Dev Fin Auth Sr OK Proton Ctr, Ser A1 (a) | | | |
| Tulsa Cnty OK Indl Auth Sr Living Cmnty Rev Ref Montereau Inc Proj | | | |
| | |
| | |
| Clackamas Cnty OR Hosp Fac Auth Rev Mary’s Woods at Marylhurst Inc Proj, Ser A | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Rose Villa Proj, Ser A | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Rose Villa Proj, Ser A | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Sr Living Willamette View Proj, Ser A | | | |
| OR St Facs Auth Rev Legacy Hlth Proj, Ser A | | | |
| Salem OR Hosp Fac Auth Rev Capital Manor Proj | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Salem OR Hosp Fac Auth Rev Capital Manor Proj | | | |
| Union Cnty OR Hosp Fac Auth Grande Ronde Hosp | | | |
| | |
| | |
| Allegheny Cnty PA Hosp Dev Auth Ref Allegheny Hlth Network Obligted Grp Issue, Ser A | | | |
| Allegheny Cnty PA Hosp Dev Auth Ref Allegheny Hlth Network Obligted Grp Issue, Ser A | | | |
| Allegheny Cnty PA Indl Dev Auth Envrnmtl Impt Rev Ref United States Steel Corp Proj | | | |
| Chester Cnty PA Indl Dev Auth Renaissance Acdmy Chrt Sch | | | |
| Lancaster Cnty PA Hosp Auth Hlthcare Facs Rev Moravian Manors Inc Proj, Ser A | | | |
| Lancaster Cnty PA Hosp Auth Hlthcare Facs Rev Moravian Manors Inc Proj, Ser A | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Montgomery Cnty PA Indl Dev Auth Exempt Facs Rev Var Constellation Energy Genration LLC Proj Ref, Ser C, AMT (Mandatory put 04/03/28) | | | |
| PA St Econ Dev Fing Auth Rev Ref Presbyterian Sr Living Prj, Ser B-2 | | | |
| PA St Econ Dev Fing Auth T/E Priv Activity Rev The Penndot Major Bridges Package One Proj P3 Proj, AMT | | | |
| PA St Turnpike Commn Turnpike Rev Ref Sub, Ser B | | | |
| Philadelphia PA Arpt Rev Ref Priv Activity, AMT, AGM | | | |
| Philadelphia PA Auth for Indl Dev Chrt Sch Rev Philadelphia E&T Chrt High Sch, Ser A | | | |
| Philadelphia PA Auth for Indl Dev Revs Kipp Philadelphia Chrt Sch Proj, Ser A | | | |
| W Cornwall Twp PA Muni Auth Ref Lebanon Vly Brethren Home Proj, Ser A | | | |
| | |
| | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-2 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured Converted, Ser A-2 | | | |
| | |
| | |
| Tobacco Stlmt Fing Corp RI Ref, Ser A | | | |
| | |
| Berkeley Cnty SC Assmnt Rev Nexton Impt Dist | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| South Carolina (Continued) | |
| Lancaster Cnty SC Assmnt Rev Ref Walnut Creek Impt Dist,
Ser A-1 | | | |
| Lexington Cnty SC Hlth Svcs Dist Lexington Med Ctr | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Ref The Woodlands at Furman | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Ref The Woodlands at Furman | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Woodlands at Furman Proj, Ser A | | | |
| | |
| | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| TN St Energy Acq Corp Gas Rev (Mandatory put 11/01/25) | | | |
| TN St Energy Acq Corp Gas Rev Var Ref Gas Proj, Ser A-1 (Mandatory put 05/01/28) | | | |
| | |
| | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Ref Legacy Trad Schs TX Proj, Ser A | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Ref Legacy Trad Schs TX Proj, Ser A | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Var Basis TX Chrt Schs Inc (Mandatory put 06/15/26) (a) | | | |
| Austin TX Arpt Sys Rev, Ser B, AMT | | | |
| Cool Wtr Muni Util Dist TX, Ser A, BAM | | | |
| Crandall TX Spl Assmnt Rev Cartwright Ranch Pub Impt Dt Impt Area #1 Proj (a) | | | |
| Galveston TX Wharves & Terminal Rev Wharves & Terminal First Lien, AMT | | | |
| Galveston TX Wharves & Terminal Rev Wharves & Terminal First Lien, AMT | | | |
| Harris Cnty TX Indl Dev Corp Var Ref Energy Transfer Proj (Mandatory put 06/01/33) | | | |
| Haslet TX Spl Assmnt Rev Haslet Pub Impt Dist #5 Impt Area #1 (a) | | | |
| Houston TX Arpt Sys Rev Ref Subord Lien, Ser A, AMT, AGM | | | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Arpt Impt Proj, Ser C, AMT | | | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Terminal E Proj, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev United Airls Inc Terminal E Proj, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev United Airls Inc Terminal Impt Proj, Ser B-1, AMT | | | |
| Justin TX Spl Assmnt Rev Timberbrook Pub Imp Dt #1 Imp Area #2 Proj (a) | | | |
| Kyle TX Spl Assmnt Rev 6 Creeks Pub Impt Dist Area #4 (a) | | | |
| Kyle TX Spl Assmnt Rev 6 Creeks Pub Impt Dist Impt Area #1 (a) | | | |
| Kyle TX Spl Assmnt Rev 6 Creeks Pub Impt Dist Impt Area #1 (a) | | | |
| La Vernia TX Hgr Edu Fin Corp Edu Rev Meridian World Sch (a) | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Liberty Hill TX Spl Assmnt Rev Butler Farms Pub Imp Dt Areas #1 and 2 Proj (a) | | | |
| Liberty Hill TX Spl Assmnt Rev Butler Farms Pub Imp Dt Areas #1 and 2 Proj (a) | | | |
| Matagorda Cnty TX Nav Dist #1 Ref AEP Tex Centrl Company Proj Remk, Ser B-2 | | | |
| N Parkway Muni Mgmt Dist #1 TX Spl Assmnt Rev Major Impts Proj (a) | | | |
| New Hope Cultural Edu Facs Fin Corp TX Retmnt Fac Rev Ref Longhorn Vlg Proj | | | |
| New Hope Cultural Edu Facs Fin Corp TX Retmnt Fac Rev Ref Longhorn Vlg Proj | | | |
| Newark Hgr Edu Fin Corp TX Edu Rev Hughen Ctr Inc Proj, Ser A, PSF-GTD | | | |
| Princeton TX Spl Assmnt Rev Whitewing Trails Pub Impr Dist #2 Phase 2 Proj Rev (a) | | | |
| Princeton TX Spl Assmnt Rev Winchester Pub Impr Dist #2 Proj (a) | | | |
| Rowlett TX Spl Assmnt Rev Trails at Cottonwood Creek Pub Imp Dist Major Imp Area Proj (a) | | | |
| Rowlett TX Spl Assmnt Rev Trails at Cottonwood Creek Pub Imp Dist Major Imp Area Proj (a) | | | |
| Rowlett TX Spl Assmnt Rev Trails at Cottonwood Creek Pub Imp Dist Major Imp Area Proj (a) | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Cook Childrens Med Ctr | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser B (Mandatory put 01/01/34) | | | |
| TX St Priv Activity Bond Surface Transprtn Corp Rev Ref Sr Lien Bond Surface Transprtn Corp, AMT | | | |
| TX St Transprtn Commn Central TX Turnpike Sys Rev Ref, Ser B | | | |
| | |
| | |
| Black Desert Pub Infra Dist Sr Bonds, Ser A (a) | | | |
| Downtown E Streetcar Swr Pub Infra Dist Sr Lien, Ser A (a) | | | |
| Jordanelle Ridge Pub Infra Structure Dist #2 UT, Ser A (a) | | | |
| Med Sch Cmps Pub Infra Dist UT, Ser A (a) | | | |
| Mida Golf & Equestrian Ctr Pub Infra Dist UT Ltd (a) | | | |
| Mida Golf & Equestrian Ctr Pub Infra Dist UT Ltd (a) | | | |
| Military Installation Dev Auth UT Tax Allocation Rev, Ser A-2 | | | |
| Red Bridge Pub Infra Dist #1 UT Sr Infra Dist, Ser 1-A (a) | | | |
| Red Bridge Pub Infra Dist #1 UT Sr Infra Dist, Ser 1-A (a) | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Mountain W Montessori Acdmy Proj, Ser A (a) | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Wallace Stegner Acdmy Proj, Ser A (a) | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Wallace Stegner Acdmy, Ser A (a) | | | |
| | |
| | |
| Botetourt Cnty VA Rsdl Care Fac Rev Ref Glebe Inc, Ser A | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Henrico Cnty VA Econ Dev Auth Rsdl Care Fac Rev Ref Lifespire of VA, Ser C | | | |
| VA Small Busn Fing Auth Priv Activity Rev Sr Transform 66 P3 Proj, AMT | | | |
| VA St Small Bus Fing Auth Rev Ref Sr Lien 95 Express Lanes LLC Proj, AMT | | | |
| VA St Small Busn Fing Auth Rsdl Fac Care Rev Ref Lifespire of VA | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Ref Westminster Canterbury on Chesapeake Bay | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Westminster Canterbury on Chesapeake Bay, Ser A | | | |
| | |
| | |
| Port of Seattle WA Rev Ref Intermediate Lein Priv Activity, Ser C, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien Priv Activity, Ser C, AMT | | | |
| Skagit Cnty WA Pub Hosp Dist #1 (g) | | | |
| WA St Hgr Edu Facs Auth Seattle Univ Proj Rev | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Ref Emerald Heights Proj, Ser A | | | |
| WA St Hsg Fin Commn Nonprofit Rev Spokane Int Acad Proj, Ser A (a) | | | |
| WA St Hsg Fin Commn Sustainable Ctf, Ser A-1 | | | |
| | |
| | |
| Monongalia Cnty WV Commn TX Incr Rev Ref Dev Dist #4 Univ Twn Centre, Ser A (a) | | | |
| Monongalia Cnty WV Commn TX Incr Rev Ref Dev Dist #4 Univ Twn Centre, Ser A (a) | | | |
| S Charleston WV Spl Dist Excise Tax Ref S Charleston Park Place Proj, Ser A (d) | | | |
| WV St Econ Dev Auth Sol Wst Disp Facs Var Arch Res Proj, AMT (Mandatory put 07/01/25) | | | |
| WV St Econ Dev Auth Sol Wst Disp Facs Var Sr Arch Res Proj, AMT (Mandatory put 07/01/25) | | | |
| WV St Hosp Fin Auth Vandalia Hlth Grp, Ser B, AGM | | | |
| | |
| | |
| Pub Fin Auth WI Chrt Sch Rev American Prep Acdmy Las Vegas 2 Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Eno River Acdmy Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Eno River Acdmy Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Eno River Acdmy Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Founders of Acdmy Las Vegas Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Founders of Acdmy Las Vegas Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Founders of Acdmy Las Vegas Proj, Ser A (a) | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Pub Fin Auth WI Chrt Sch Rev Founders of Acdmy Las Vegas Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Ltd American Prep Acdmy Las Vegas Proj, Ser A (a) | | | |
| Pub Fin Auth WI Chrt Sch Rev Ltd American Prep Acdmy Las Vegas Proj, Ser A (a) | | | |
| Pub Fin Auth WI Edu Rev Coral Acdmy Science Las Vegas, Ser A | | | |
| Pub Fin Auth WI Edu Rev Coral Acdmy Science Las Vegas, Ser A | | | |
| Pub Fin Auth WI Edu Rev Ref Mountain Island Chrt Sch Ltd | | | |
| Pub Fin Auth WI Edu Rev Ref Mountain Island Chrt Sch Ltd | | | |
| Pub Fin Auth WI Edu Rev Triad Eductnl Svcs Inc | | | |
| Pub Fin Auth WI Edu Rev Triad Eductnl Svcs Inc, Ser A | | | |
| Pub Fin Auth WI Eductnl Rev Piedmont Cmnty Chrt Sch | | | |
| Pub Fin Auth WI Hosp Rev Ref Carson Vly Med Ctr, Ser A (a) | | | |
| Pub Fin Auth WI Hotel Rev Sr Lien Grand Hyatt San Antonio Hotel Acq Proj, Ser A | | | |
| Pub Fin Auth WI Retmnt Cmntys Rev Acts Retmnt Life Cmntys Inc Oblig Grp, Ser A | | | |
| Pub Fin Auth WI Rev Sr Proton Intl AR LLC, Ser A (d) | | | |
| Pub Fin Auth WI Rev Unrefunded Roseman Univ Hlth Sciences Proj (a) | | | |
| Pub Fin Auth WI Sr Living Rev Ref Mary’s Woods at Marylhurst Proj, Ser A (a) | | | |
| Pub Fin Auth WI Sr Living Rev Ref Mary’s Woods at Marylhurst Proj, Ser A (a) | | | |
| Pub Fin Auth WI Sr Living Rev Ref Mary’s Woods at Marylhurst Proj, Ser A (a) | | | |
| Pub Fin Auth WI Stdt Hsg Rev NC A&T Real Estate Fdtn LLC Proj, Ser B | | | |
| WI St Hlth & Eductnl Facs Auth Rev Bellin Memorial Hosp Inc, Ser A | | | |
| | |
|
|
| Total Investments — 96.8% | |
| | |
| Net Other Assets and Liabilities — 3.2% | |
| | |
Futures Contracts at January 31, 2024 (See Note 2C - Futures Contracts in the Notes to Financial Statements):
| | | | | Unrealized
Appreciation
(Depreciation)/
Value |
U.S. 10-Year Treasury Notes | | | | | |
Ultra 10-Year U.S. Treasury Notes | | | | | |
| | | | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2024, securities noted as such amounted to $144,145,886 or 26.3% of net assets. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by the Advisor. |
| This issuer is in default and interest is not being accrued by the Fund. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2D - Restricted Securities in the Notes to Financial Statements). |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| |
| When-issued security. The interest rate shown reflects the rate in effect at January 31, 2024. Interest will begin accruing on the security’s first settlement date. |
Abbreviations throughout the Portfolio of Investments: |
| – Assured Guaranty Municipal Corp. |
| – Alternative Minimum Tax |
| |
| – Capital Appreciation Bonds |
| – Certificates of Participation |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Statement of Assets and Liabilities
January 31, 2024 (Unaudited)
| |
| |
| |
Cash segregated as collateral for open futures contracts | |
| |
| |
| |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Statement of Operations
For the Six Months Ended January 31, 2024 (Unaudited)
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
| |
| |
Net change in unrealized appreciation (depreciation) on: | |
| |
| |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Statements of Changes in Net Assets
| Six Months
Ended
1/31/2024 (Unaudited) | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)Financial Highlights
For a share outstanding throughout each period
| Six Months
Ended
1/31/2024
(Unaudited) | |
| | | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Based on average shares outstanding. |
| The Fund received a reimbursement from the advisor in the amount of $469 in connection with a trade error, which represents less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) 1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of seventeen funds that are offering shares. This report covers the First Trust Municipal High Income ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “FMHI” on Nasdaq, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The primary investment objective of the Fund is to provide federally tax-exempt income, and its secondary objective is long-term capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes. There can be no assurance that the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Municipal securities and other debt securities are fair valued on the basis of fair valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots.
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) Exchange-traded futures contracts are valued at the end of the day settlement price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of the security;
6)
the financial statements of the issuer;
7)
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security; and
12)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of January 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At January 31, 2024, the Fund held $2,062,566 of when-issued or delayed-delivery securities. At January 31, 2024, the Fund had no forward purchase commitments.
C. Futures Contracts
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. This daily fluctuation in the value of the contract is also known as variation margin and is included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
Restricted cash segregated as collateral for futures contracts in the amount of $315,808 is shown as “Cash segregated as collateral for open futures contracts” on the Statement of Assets and Liabilities.
D. Restricted Securities
The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of January 31, 2024, the Fund held restricted securities as shown in the following table that the Advisor has deemed illiquid pursuant to procedures adopted by the Trust’s Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. The Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are not expressed as a discount to the carrying value of a comparable unrestricted security.
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) | | | | | | |
IN St Fin Auth Rev Eductnl Facs Rock Creek Cmnty Acdmy Proj, Ser A, 5.25%, 07/01/28 | | | | | | |
Polk Cnty FL Indl Dev Auth Mineral Dev LLC Secondary Phosphate Tailings Recovery Proj, 5.88%, 01/01/33 | | | | | | |
Pub Fin Auth WI Rev Sr Proton Intl AR LLC, Ser A, 6.85%, 01/01/51 | | | | | | |
S Charleston WV Spl Dist Excise Tax Ref S Charleston Park Place Proj, Ser A, 4.50%, 06/01/50 | | | | | | |
| | | | | | |
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal year ended July 31, 2023 was as follows:
As of July 31, 2023, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
F. Income Taxes
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
In addition, the Fund intends to invest in municipal securities to allow it to pay shareholders “exempt dividends” as defined in the Code.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and state audit. As of January 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2023, for federal income tax purposes, the Fund had $33,632,415 of capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended July 31, 2023, the Fund had no net ordinary losses.
As of January 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
G. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. Prior to October 16, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which was covered under the annual unitary management fee. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Effective October 16, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNYM is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to October 16, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended January 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $182,812,108 and $63,718,037, respectively.
For the six months ended January 31, 2024, the Fund had no in-kind transactions.
5. Borrowings
As of January 31, 2024, the Trust, on behalf of the Fund, along with First Trust Series Fund and First Trust Exchange-Traded Fund IV has a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charges a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans and an agency fee. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the six months ended January 31, 2024.
6. Derivative Transactions
The following table presents the types of derivatives held by the Fund at January 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the six months ended January 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on futures contracts | |
Net change in unrealized appreciation (depreciation) on futures contracts | |
During the six months ended January 31, 2024, the notional value of futures contracts opened and closed were $94,011,790 and $104,148,965, respectively.
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) The Fund does not have the right to offset financial assets and financial liabilities related to futures contracts on the Statement of Assets and Liabilities.
7. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
8. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2024.
9. Indemnification
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
10. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there was the following subsequent event:
Notes to Financial Statements (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) The Trust, on behalf of FMHI, along with First Trust Series Fund and First Trust Exchange-Traded Fund IV, terminated the credit facility that it had with Scotia on February 28, 2024. Effective February 28, 2024, the Trust, on behalf of FMHI, along with First Trust Series Fund, First Trust Exchange-Traded Fund IV and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNYM as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620,000,000 and such commitment amount may be increased up to $700,000,000 with the consent of one or more lenders. BNYM charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans. First Trust allocates the commitment fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged.
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Municipal High Income ETF (FMHI)January 31, 2024 (Unaudited) payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
|
For the Six Months Ended
January 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Short Duration Managed Municipal ETF (FSMB) |
First Trust Ultra Short Duration Municipal ETF (FUMB) |
First Trust Exchange-Traded Fund III
Semi-Annual Report
January 31, 2024
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data and analysis that provide insight into each Fund’s performance and investment approach.
The statistical information that follows may help you understand each Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in the prospectus, the statement of additional information, and other Fund regulatory filings.
First Trust Exchange-Traded Fund III
Semi-Annual Letter from the Chairman and CEO
January 31, 2024
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for certain series of the First Trust Exchange-Traded Fund III (the “Funds”), which contains detailed information about the Funds for the six-month period ended January 31, 2024.
While there were many noteworthy financial and economic developments over the past six months, perhaps chief among them was the December 2023 statement from the Federal Reserve (the “Fed”). After voting on December 13 to keep the Federal Funds target rate unchanged, the Fed revealed that it was planning up to three interest rate cuts totaling 75 basis points in 2024. The timing of the Fed’s statement came as a surprise to many, especially given its September 2023 announcement that its policy rate was likely to remain “higher for longer” due to stubbornly high inflation.
With December’s announcement effectively taking further interest rate hikes off the table, the discussion now focuses on the timing of the Fed’s cuts. As expected, there are numerous opinions. At the end of December 2023, the futures market for the Federal Funds target rate indicated an 84.3% chance that the Fed would cut its policy rate at its March 2024 meeting. Since then, better than expected economic data and a re-acceleration in the rate of inflation have changed the calculus substantially. As of January 31, 2024, the same futures market indicated a 34.9% chance of the first interest rate cut occurring in March, representing a decline of 49.4 percentage points from where it stood last month.
Falling interest rates could be a boon to an already exuberant U.S. consumer. Consumer sentiment is surging, and shoppers are spending in droves. The University of Michigan’s “Survey of Consumers” revealed that the metric rose by 21.7% on a year-over-year basis in January 2024, reaching its highest level since July 2021. Adobe Analytics reported that a record $222.1 billion was spent online over the 2023 holiday shopping season (which runs from November 1 through December 31), up from $211.7 billion over the same period in 2022. In addition, real discretionary consumer spending rose to $10.9 trillion in 2023, an increase of $1.2 trillion from the $9.7 trillion in real discretionary spending in 2019 (pre-COVID-19). That said, there is data that suggests all this spending may not be sustainable. The Federal Reserve Bank of New York reported that aggregate household debt rose to a record $17.5 trillion at the end of 2023, while the share of credit card balances that moved into serious delinquency (90 days or more past due) rose to 6.3% in the fourth quarter of the year. The last time this share of credit card balances were seriously delinquent was in the second quarter of 2011.
Keep in mind that higher interest rates have been very good for some investors. Take the large portion of cash in money market funds, CDs, and even investments in the broader fixed income markets, as an example. Higher interest rates and recent disinflation have created an environment where, for the first time in many years, these assets are earning a positive real return. By the Fed’s own admission, interest rates are not likely to remain at these levels for long. For the time being, however, investors with capital on hand are being rewarded.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Funds again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
First Trust Short Duration Managed Municipal ETF (FSMB)
The First Trust Short Duration Managed Municipal ETF (the “Fund”) seeks to provide federally tax-exempt income consistent with capital preservation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes. The Fund’s investment advisor seeks to construct a portfolio that has a weighted average duration of 1-3 years. The Fund lists and principally trades its shares on NYSE Arca, Inc. under the ticker symbol “FSMB.”
|
| | | Average Annual Total Returns | |
| | | | Inception
(11/1/18)
to 1/31/24 | | Inception
(11/1/18)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Bloomberg Municipal Short (1-5) Year Index | | | | | | |
Bloomberg Municipal Bond Index | | | | | | |
(See Notes to Fund Performance Overview on page 7.)
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
Government Obligation Bond - Unlimited Tax | |
Industrial Development Bond | |
| |
Certificates of Participation | |
| |
| |
| |
Pre-refunded/Escrowed-to-maturity | |
Continuing Care Retirement Communities | |
| |
| |
| |
Government Obligation Bond - Limited Tax | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Amount is less than 0.1%. |
| The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
Fund Performance Overview (Unaudited) (Continued)
First Trust Short Duration Managed Municipal ETF (FSMB) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Fund Performance Overview (Unaudited) (Continued)
First Trust Ultra Short Duration Municipal ETF (FUMB)
The First Trust Ultra Short Duration Municipal ETF (the “Fund”) seeks to provide federally tax-exempt income consistent with capital preservation. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes. Under normal market conditions, the weighted average duration of the Fund’s portfolio is expected to be less than one year. The Fund lists and principally trades its shares on NYSE Arca, Inc. under the ticker symbol “FUMB.”
|
| | | Average Annual Total Returns | |
| | | | Inception
(11/1/18)
to 1/31/24 | | Inception
(11/1/18)
to 1/31/24 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Bloomberg Municipal Short-Term Index | | | | | | |
Bloomberg Municipal Bond Index | | | | | | |
(See Notes to Fund Performance Overview on page 7.)
| % of Total
Investments
(including cash) |
Pre-refunded/Escrowed-to-maturity | |
Government Obligation Bond - Unlimited Tax | |
| |
Industrial Development Bond | |
| |
| |
Certificates of Participation | |
| |
| |
| |
| |
| |
Government Obligation Bond - Limited Tax | |
| |
| |
| |
| |
| |
| |
| |
Continuing Care Retirement Communities | |
| |
| |
| |
| % of Total
Investments
(including cash) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Amount is less than 0.1%. |
| The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings, or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change. |
Fund Performance Overview (Unaudited) (Continued)
First Trust Ultra Short Duration Municipal ETF (FUMB) (Continued)
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
Notes to Fund Performance Overview (Unaudited)
Total returns for the periods since inception are calculated from the inception date of each Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the periods indicated. “Cumulative Total Returns” represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived by the Advisor.
Each Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under Securities and Exchange Commission rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Prior to January 1, 2019, the price used was the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund were listed for trading as of the time that the Fund’s NAV was calculated. Since shares of each Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund’s past performance is no guarantee of future performance.
First Trust Exchange-Traded Fund IIISemi-Annual ReportJanuary 31, 2024 (Unaudited) Advisor
First Trust Advisors L.P. (“First Trust”) serves as the investment advisor to the First Trust Short Duration Managed Municipal ETF (“FSMB”) and the First Trust Ultra Short Duration Municipal ETF (“FUMB”) (each a “Fund” and collectively, the “Funds”). First Trust is responsible for the ongoing monitoring of each Fund’s investment portfolio, managing each Fund’s business affairs and providing certain administrative services necessary for the management of each Fund.
Portfolio Management Team
The following persons serve as portfolio managers of the Fund:
Tom Byron, Senior Vice President, Senior Portfolio Manager
Johnathan N. Wilhelm, Senior Vice President, Senior Portfolio Manager
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Funds. Tom Byron has served as portfolio manager since 2022 and Johnathan N. Wilhelm has served as portfolio manager since 2018.
First Trust Exchange-Traded Fund IIIUnderstanding Your Fund ExpensesJanuary 31, 2024 (Unaudited) As a shareholder of First Trust Short Duration Managed Municipal ETF or First Trust Ultra Short Duration Municipal ETF (each a “Fund” and collectively, the “Funds”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended January 31, 2024.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
August 1, 2023 | Ending
Account Value
January 31, 2024 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust Short Duration Managed Municipal ETF (FSMB) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
First Trust Ultra Short Duration Municipal ETF (FUMB) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (August 1, 2023 through January 31, 2024), multiplied by 184/366 (to reflect the six-month period). |
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | | | |
|
| | |
| Black Belt Energy Gas Dist AL Gas Prepay Rev Proj No. 4, Ser A-1 (Mandatory put 12/01/25) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev Bonds Proj No. 7, Ser C-1 (Mandatory put 12/01/26) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev Proj No. 6, Ser B (Mandatory put 12/01/26) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 (Mandatory put 06/01/29) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser E | | | |
| Greenville AL Pub Impt Cooperative Pub Impt Rev Greenville Funding, BAM | | | |
| Hlth Care Auth for Baptist Hlth AL Ref Affiliate of UAB Hlth Sys, Ser A | | | |
| Infirmary Hlth Sys AL Spl Care Facs Fing Auth Rev Infirmary Hlth Sys Inc, Ser A | | | |
| Jefferson Cnty AL Swr Rev Warrants Ref Warrants | | | |
| Lower AL Gas Dist Gas Proj Rev Bonds Proj 2 (Mandatory put 12/01/25) | | | |
| Midcity Impt Dist AL Spl Assmnt Rev | | | |
| SE AL St Gas Sply Dist Gas Sply Rev Proj #2, Ser A (Mandatory put 06/01/24) | | | |
| SE Energy Auth AL Cmdy Sply Rev Proj #1, Ser A (Mandatory put 10/01/28) | | | |
| SE Energy Auth AL Cmdy Sply Rev Proj No. 3, Ser A-1 | | | |
| Selma AL Indl Dev Brd Rev Var Ref Intl Paper Company Proj, Ser A (Mandatory put 10/01/24) | | | |
| | |
| | |
| AZ St Indl Dev Auth Edu Rev Acads of Math & Science Proj, Ser B (a) | | | |
| AZ St Indl Dev Auth Edu Rev Jerome Fac Proj Sustainable Bonds, Ser B | | | |
| AZ St Indl Dev Auth Edu Rev Jerome Fac Proj Sustainable Bonds, Ser B | | | |
| AZ St Indl Dev Auth Edu Rev Pinecrest Acdmy Horizon Inspirada & St Rose Cmps, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Schs Projs, Ser A (a) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (a) | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan FD Equitable Sch Revolving Fund Sustainable Bonds, Ser A | | | |
| AZ St Indl Dev Auth Rev Lincoln S Beltway Proj | | | |
| Chandler AZ Indl Dev Auth Indl Dev Rev Var Intel Corp Proj, Ser 2022-2, AMT (Mandatory put 09/01/27) | | | |
| Coconino Cnty AZ Poll Controlcorp Var Ref NV Pwr Co Proj Remk, Ser B (Mandatory put 03/31/26) | | | |
| Glendale AZ Indl Dev Auth Sr Living Facs Rev Ref Royal Oaks Life Care Cmnty | | | |
| Phoenix AZ Indl Dev Auth Edu Rev Ref Basis Sch (a) | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Pima Cnty AZ Indl Dev Auth Sr Living Rev La Posada at Pusch Ridge Proj, Ser A (a) | | | |
| Santa Cruz Cnty AZ Pledged Rev Ref, AGM | | | |
| | |
| | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser A-1 | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser A-1 | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser A-1 (Mandatory put 08/01/28) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser B-1 (Mandatory put 08/01/31) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser B-1 (Mandatory put 08/01/29) | | | |
| CA St Enterprise Dev Auth Stdt Hsg Rev M@College Proj, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev Adventist Hlth Sys W, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev El Camino Hosp | | | |
| CA St Hlth Facs Fing Auth Rev Initial Entrance Fees, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev Var Ref Stanford Hlth Care, Ser A (Mandatory put 08/15/25) | | | |
| CA St Infra & Econ Dev Bank Rev Brightline E Passenger Rail Proj Remk, Ser A, AMT (Mandatory put 01/30/25) (a) (b) | | | |
| CA St Muni Fin Auth Mobile Home Park Rev Ref Sr Caritas Projs, Ser A | | | |
| CA St Muni Fin Auth Ref Palomar Hlth, Ser A, AGM, COPS | | | |
| CA St Muni Fin Auth Spl Fac Rev United Airls Inc Proj, AMT | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Ref Waste Mgmt Inc, Ser B-1, AMT | | | |
| CA St Sch Fin Auth Chrt Sch Rev Ref Classical Academies Oceanside Proj, Ser A (a) | | | |
| CA St Stwd Cmntys Dev Auth Spl Tax Rev Impt Area No. 1 | | | |
| CA St Stwd Cmntys Dev Auth Spl Tax Rev Impt Area No. 1 | | | |
| CA St Stwd Cmntys Dev Auth Stwd Rev Dev Auth, Ser 2021A | | | |
| Folsom Ranch CA Fing Auth Spl Tax Rev White Rock Springs Ranch | | | |
| Long Beach CA Arpt Rev Ref, Ser A, AGM | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sub Los Angeles Intl Arpt, Ser B, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Subord Ref, Ser A, AMT | | | |
| March Jt Pwrs Redev Agy Successor Agy CA Tax Allocation Ref March Air Force Base Redev Proj, Ser A, BAM | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax Rev Grantline 208 Cmnty Fac Dt #2018-1 | | | |
| River Islands CA Pub Fing Auth Spl Tax Ref Cmnty Facs Dt #2003-1, Ser A-1, AGM | | | |
| Roseville CA Spl Tax Svsp Westpark Federico Cmnty Facs Dt No. 1 | | | |
| Roseville CA Spl Tax Svsp Westpark Federico Cmnty Facs Dt No. 1 | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Roseville CA Spl Tax Svsp Westpark Federico Cmnty Facs Dt No. 1 | | | |
| San Diego CA Unif Sch Dist Ref Election 1998, Ser C-2, AGM | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Subord Ref, Ser A | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev Ref, 2nd Ser, Ser A | | | |
| San Francisco CA City & Cnty Dev Spl Tax Dist No Mission Rock Fac and Svcs, Ser A (a) | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1, Ser 2021 | | | |
| San Luis Obispo CA Cmnty Facs Dist #2019-1 Spl Tax | | | |
| San Luis Obispo CA Cmnty Facs Dist #2019-1 Spl Tax | | | |
| Sanger CA Fing Auth Wstwtr Rev Ref, AGM (Pre-refunded maturity 06/15/24) | | | |
| Western Placer Wst Mgmt Auth CA Solid Wst Rev Landfill Impt Proj, Ser B | | | |
| | |
| | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Univ Lab Bldg Corp (a) | | | |
| CO St Eductnl & Cultural Facs Auth Rev Ref Chrt Sch Stargate Chrt Sch Proj, Ser A | | | |
| CO St Hlth Facs Auth Rev Commonspirit Hlth Oblig Grp, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Meadows Retmnt Cmnty Proj, Ser A | | | |
| CO St Hlth Facs Auth Rev Var Ref Intermountain Hlthcare, Ser B (Mandatory put 08/17/26) | | | |
| CO St Hlth Facs Auth Rev Var Ref Intermountain Hlthcare, Ser C (Mandatory put 08/15/28) | | | |
| Denver City & Cnty CO Arpt Rev Ref Sub Sys, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev Sub Sys, Ser B | | | |
| Denver City & Cnty CO Arpt Rev Var Ref, Ser B2, AMT (Mandatory put 11/15/25) | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Gold Hill Mesa Met Dist #2 CO Ltd Tax & Spl Rev Ref, Ser A, BAM | | | |
| | |
| | |
| CT St Hlth & Eductnl Facs Auth Rev Hartford Hlthcare, Ser A | | | |
| CT St Hlth & Eductnl Facs Auth Rev Hartford Hlthcare, Ser E | | | |
| CT St Hlth & Eductnl Facs Auth Rev Ref St Supported Child Care | | | |
| CT St Hlth & Eductnl Facs Auth Rev Ref Yale Univ, Ser A-2 (Mandatory put 07/01/26) | | | |
| CT St Hlth & Eductnl Facs Auth Rev Var Remk, Ser A (Mandatory put 02/10/26) | | | |
| CT St Spl Tax Oblig Rev Ref Transprtn Infra, Ser B | | | |
| CT St Spl Tax Oblig Rev Transprtn Infra, Ser A | | | |
| CT St Spl Tax Oblig Rev, Ser B | | | |
| CT St Sustainable Bond, Ser F | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| E Hartford CT Hsg Auth Multifamily Hsg Rev Var Summerfield Townhouses Proj, Ser A (Mandatory put 02/01/25) | | | |
| | | | |
| | | | |
| | |
| District of Columbia — 0.3% | |
| Met Washington DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| Met Washington DC Arpts Auth Arpt Sys Rev Ref, Ser B, AMT | | | |
| | |
| | |
| Alachua Cnty FL Hlth Facs Auth CCRC Ref Oak Hammock at the Univ of FL Inc Proj | | | |
| Alachua Cnty FL Hlth Facs Auth CCRC Ref Oak Hammock at the Univ of FL Inc Proj | | | |
| Alachua Cnty FL Hlth Facs Auth CCRC Ref Oak Hammock at the Univ of FL Inc Proj | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Assmt Area 3A (a) | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Proj, Ser 2021 | | | |
| Babcock Ranch Cmnty Indep Spl Dist FL Spl Assmnt Rev Proj, Ser 2022 | | | |
| Berry Bay CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Berry Bay CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Black Creek FL CDD Spl Assmnt Expansion Area Proj | | | |
| Broward Cnty FL Arpt Sys Rev, Ser A, AMT | | | |
| Broward Cnty FL Port Facs Rev, AMT | | | |
| Broward Cnty FL Port Facs Rev Sr Bond, Ser B, AMT | | | |
| Cross Creek N CDD FL Spl Assmnt, Ser 2022 | | | |
| Edgewater E CDD FL Spl Assmnt Rev Assmnt Area Two | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area Three, Ser A | | | |
| Escambia Cnty FL Envrnmntl Impt Rev Var Ref Intl Paper Company Proj, Ser B (Mandatory put 10/01/24) | | | |
| FL St Dept Gen Svcs Div Facs Mgmt Rev Ref FL Facs Pool, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Sr Living Rev Ref Glenridge on Palmer Ranch Proj (a) | | | |
| FL St Dev Fin Corp Sr Living Rev Ref Glenridge on Palmer Ranch Proj (a) | | | |
| FL St Muni Pwr Agy Ref, Ser A | | | |
| Gtr Orlando FL Aviation Auth Arpt Facs Rev Prerefunded Priority Sub, Ser A, AMT | | | |
| Gulfstream Polo Cmnty Dev Dist FL Spl Assmnt Phase 2 Proj | | | |
| Halifax FL Hosp Med Ctr Ref | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Harmony FL CDD Capital Impt Rev Ref | | | |
| Hidden Creek N Cmnty Dev Dist FL Spl Assmnt, Ser A1 | | | |
| Hills Minneola Cmnty Dev Dist FL Spl Assmnt Rev S Parcel Assmnt Area (a) | | | |
| Lakes of Sarasota CDD FL Impt Rev Phase 1 Proj Assmnt Area One, Ser A-1 | | | |
| Lee Cnty FL Indl Dev Auth Hlthcr Facs Rev Shell Point Oblig Grp | | | |
| LTC Ranch W Rsdl Cmnty Dev Dist Spl Assmnt Rev Assmnt Area One Proj, Ser A | | | |
| Martin Cnty FL Hlth Facs Auth Martin Mem Med Ctr (Pre- refunded maturity 11/15/24) | | | |
| Miami-Dade Cnty FL Sch Brd Ref, Ser C, COPS | | | |
| Miami-Dade Cnty FL Seaport Rev Ref Sr Bonds, Ser A, AMT | | | |
| Mirada II Cmnty Dev Dist FL Cap Impt Rev | | | |
| N Springs FL Impt Dist Heron Bay Wtr Mgmt Proj, Ser 2021-1, AGM | | | |
| Palm Beach Cnty FL Hlth Facs Auth Ref Acts Retmnt Life Cmntys Inc Oblig Grp | | | |
| Pine Isle Cmnty Dev Dist FL Spl Assmnt 2021 Proj (a) | | | |
| Poinciana FL W CDD Spl Assmnt Ref Sr, Ser 1, AGM | | | |
| Rhodine Road N CDD FL Spl Assmnt 2019 Assmnt Area | | | |
| Rhodine Road N CDD FL Spl Assmnt 2019 Assmnt Area | | | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| San Simeon Cmnty Dev Dist FL Spl Assmnt (a) | | | |
| Sarasota Natl FL CDD Spl Assmnt Ref | | | |
| Sarasota Natl FL CDD Spl Assmnt Ref | | | |
| Shell Point Cmnty Dev Dist FL Spl Assmnt (a) | | | |
| Shingle Creek at Bronson CDD FL Spl Assmnt | | | |
| Silver Palms W CDD FL Spl Assmnt 2022 Proj | | | |
| Six Mile Creek FL CDD Capital Impt Rev Assmnt Area 3 Phase 1 | | | |
| Summer Woods CDD FL Spl Assmnt Area Two 2020 Proj | | | |
| Tampa FL Capital Impt Cigarette Tax Allocation H Lee Moffitt Cancer Ctr Proj, Ser A | | | |
| The Heights CDD FL Spl Assmnt Rev CDD | | | |
| Timber Creek SW CDD FL Spl Assmnt Area Two Proj | | | |
| Tolomato FL CDD Ref 2022A Assmnt Area, Ser A, AGM | | | |
| Tolomato FL CDD Ref 2022A Assmnt Area, Ser A, AGM | | | |
| V-Dana CDD FL Spl Assmnt CDD Assmnt Area One 2021 Proj | | | |
| Veranda CDD II FL Spl Assmnt Rev Ref Assmt Area 3 Preserve E Proj | | | |
| Villamar CDD FL Spl Assmnt | | | |
| Vlg FL CDD #6 Spl Assmnt Rev Ref | | | |
| Westside Haines City CDD Spl Assmnt Area One Proj | | | |
| | |
| | |
| Atlanta GA Arpt Rev Ref, Ser B, AMT | | | |
| Bartow Cnty GA Dev Auth Var GA Pwr Comp Plant Bowen Proj Remk (Mandatory put 08/19/25) | | | |
| Bartow Cnty GA Dev Auth Var Ref GA Pwr Co Plt Bowen Proj Remk, First Ser (Mandatory put 03/08/28) | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Plant Vogtle Proj Remk (Mandatory put 06/13/24) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Vogtle, 1st Ser (b) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var Ref GA Pwr Co Plant Vogtle Proj (b) | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser B | | | |
| GA St Ref Bid Grp 3, Ser C | | | |
| Heard Cnty GA Dev Auth Adj GA Pwr Co Plt Wansley Proj (b) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 09/01/27) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 12/01/29) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 09/01/31) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser C (Mandatory put 09/01/26) | | | |
| Monroe Cnty GA Dev Auth Poll Control Rev GA Pwr Co Plant Scherer Proj Remk, 1st Ser | | | |
| Monroe Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Plt Scherer Proj Remk, 2nd Ser (Mandatory put 03/06/26) | | | |
| Muni Elec Auth of GA Plant Vogtle Units 3&4 Proj J Bonds, Ser A, AGM | | | |
| Muni Elec Auth of GA Plant Vogtle Units 3&4 Proj J, Ser A, AGM | | | |
| Muni Elec Auth of GA Plant Vogtle Units 3&4 Proj M, Ser A, AGM | | | |
| Muni Elec Auth of GA Ref Subord General Resolution Projs, Ser A | | | |
| Priv Clgs & Univs Auth GA Ref Mercer Univ Proj | | | |
| Priv Clgs & Univs Auth GA Ref Mercer Univ Proj | | | |
| | |
| | |
| Honolulu City & Cnty HI Wstwtr Sys Rev Ref Sr First Bd Resolution, Ser B | | | |
| | |
| ID St Hlth Facs Auth Rev Ref St Lukes Hlth System Proj, Ser A | | | |
| | |
| Bolingbrook IL Ref, Ser A, AGM | | | |
| Chicago IL Brd of Edu Chicago Sch Reform Brd, Ser A, NATL-RE | | | |
| Chicago IL Brd of Edu Ref, Ser A | | | |
| Chicago IL Brd of Edu Sustainable Bond, Ser E | | | |
| Chicago IL Mf Hsg Rev Var Covent Apartments Proj (Mandatory put 09/01/24) | | | |
| Chicago IL Midway Arpt Rev Ref 2nd Lien, Ser A, AMT | | | |
| Chicago IL Midway Arpt Rev Ref Sr Lien, Ser A, AMT, BAM | | | |
| Chicago IL O’Hare Intl Arpt Rev Gen Sr Lien, Ser D, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref Sr Lien O’Hare Intl Arpt, Ser C, AMT | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Chicago IL Ref 2003B Remk | | | |
| Chicago IL Ref 2003B Remk (Pre-refunded maturity 01/01/25) | | | |
| Chicago IL Ref, Ser C, CABS | | | |
| | | | |
| | | | |
| Chicago IL Unrefunded, Ser A | | | |
| Chicago IL Wtrwks Rev 2nd Lien Remk, BAM | | | |
| Chicago IL Wtrwks Rev Ref 2nd Lien, AGM | | | |
| Chicago IL, Ser A (Pre-refunded maturity 01/01/25) | | | |
| Cook Cnty IL Sales Tax Rev Ref, Ser A | | | |
| Gilberts IL Spl Svc Area #15 Ref, AGM | | | |
| | | | |
| IL St Fin Auth Hlth Svcs Facs Lease Rev Univ of IL Hlth Svcs Fac Proj | | | |
| IL St Fin Auth Rev Centegra Hlth Sys, Ser A (Pre-refunded maturity 09/01/24) | | | |
| IL St Fin Auth Rev Ref Ascension Hlth Credit Grp, Ser C | | | |
| IL St Fin Auth Rev Ref Ascension Hlth Credit Grp, Ser C | | | |
| IL St Fin Auth Rev Ref Rush Univ Med Ctr, Ser A | | | |
| IL St Fin Auth Rev Ref Rush Univ Med Ctr, Ser A | | | |
| IL St Fin Auth Rev Var Uchicago Medicine, Ser B2 (Mandatory put 08/15/27) | | | |
| IL St Hsg Dev Auth Mf Hsg Rev Var 6900 Crandon (Mandatory put 02/01/26) | | | |
| IL St Hsg Dev Auth Mf Hsg Rev Var Berry Manor (Mandatory put 09/01/24) | | | |
| IL St Hsg Dev Auth Mf Hsg Rev Var S Shore (Mandatory put 06/01/25) | | | |
| IL St Muni Elec Agy Pwr Sply Ref, Ser A | | | |
| | | | |
| IL St Sales Tax Rev Ref, Subser C, BAM | | | |
| IL St Toll Hwy Auth Sr, Ser B | | | |
| | | | |
| | | | |
| Macon Cnty IL Sch Dist #61 Ref, Ser C, AGM | | | |
| Railsplitter IL Tobacco Stlmt Auth (Pre-refunded maturity 06/01/26) | | | |
| Rock Island Cnty IL Sch Dist #41 Rock Island, BAM | | | |
| Sales Tax Securitization Corp IL Ref Sales Tax Securitiztn, Ser A | | | |
| | | | |
| Springfield IL Elec Rev Ref Sr Lien | | | |
| Springfield IL Elec Rev Ref Sr Lien | | | |
| Univ of IL IL Revs Ref Auxiliary Facs Sys, Ser A | | | |
| Wauconda IL Spl Svc Area #1 Spl Tax Ref, BAM | | | |
| | |
| | |
| IN Bond Bank Rev Hamilton Co Projs, CABS | | | |
| IN St Fin Auth Econ Dev Rev Ref Rep Svcs Inc Proj Remk, Ser A, AMT (Mandatory put 03/01/24) (b) | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| IN St Fin Auth Envrnmntl Facs Rev Var Ref IN Pwr & Light Co Proj, Ser A | | | |
| IN St Fin Auth Hlth Sys Rev IN Univ Hlth Oblig Grp, Ser B (Mandatory put 07/01/25) | | | |
| IN St Fin Auth Rev BHI Sr Living, Ser A | | | |
| IN St Fin Auth Rev Cmnty Fdtn of NW IN Ref | | | |
| Rockport IN Poll Control Rev Ref AEP Generating Company Proj Remk, Ser A | | | |
| Rockport IN Poll Control Rev Ref AEP Generating Company Proj Remk, Ser B | | | |
| Rockport IN Poll Control Rev Ref IN MI Pwr Co Proj Remk, Ser A | | | |
| Whiting IN Envrnmntl Facs Rev Ref BP Products N America Inc Proj, Ser A, AMT (Mandatory put 06/05/26) | | | |
| | |
| | |
| Johnston IA Cmnty Sch Dist Infra Sales Svcs & Ref, AGM | | | |
| Pefa Inc IA Gas Proj Rev (Mandatory put 09/01/26) | | | |
| | |
| | |
| Dodge City KS Temp Nts, Ser 2023-1 | | | |
| Johnson Cnty KS Unif Sch Dist #512 Shawnee Mission Ref, Ser A | | | |
| | |
| | |
| Estrn KY Univ Gen Recpts, Ser A | | | |
| KY St Econ Dev Fin Auth Hlth Sys Rev Norton Hlthcare Inc, Ser B, CABS, NATL-RE | | | |
| KY St Econ Dev Fin Auth Ref Owensboro Hlth, Ser A | | | |
| KY St Hgr Edu Stdt Loan Corp Sr, Ser A, AMT | | | |
| KY St Muni Pwr Agy Pwr Sys Rev Ref, Ser A, NATL-RE | | | |
| KY St Muni Pwr Agy Pwr Sys Rev Ref, Ser A, NATL-RE | | | |
| KY St Pub Energy Auth Gas Sply Rev Gas Sply, Ser B (Mandatory put 01/01/25) | | | |
| KY St Pub Energy Auth Gas Sply Rev Var, Ser C (Mandatory put 02/01/28) | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Var Norton Hlthcare Inc, Ser C (Mandatory put 10/01/26) | | | |
| Meade Cnty KY Indl Bldg Rev Var Nucor Steel Brandenburg Proj Sustainable Bond, Ser B-1 (b) | | | |
| Paducah KY Elec Plant Brd Rev Ref, Ser A, AGM | | | |
| Trimble Cnty KY Envrnmntl Facs Rev Var Louisville Gas & Elec Co Proj, Ser A, AMT (Mandatory put 06/01/27) | | | |
| | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| E Baton Rouge Parish LA Sales Tax Rev Ref Road & Street Impt | | | |
| LA St Pub Facs Authsol Wst Disp Fac Rev Var Elementus Minerals LLC Proj (Mandatory put 11/01/25) (a) | | | |
| LA St Univ & Agric & Mech Clg Ref Auxiliary, Ser A | | | |
| | | | |
| New Orleans LA Aviation Brd Gen Arpt N Term, Ser B, AMT | | | |
| New Orleans LA Aviation Brd, Ser B, AMT | | | |
| New Orleans LA Aviation Brd, Ser B, AMT, AGM | | | |
| Saint James Parish LA Rev Var Nustar Logistics LP Proj Remk, Ser 2011 (Mandatory put 06/01/25) (a) | | | |
| Saint John the Baptist Parish LA Rev Var Ref Marathon Oil Corp Proj Remk, Subser 2017B-1 (Mandatory put 07/01/24) | | | |
| Saint John the Baptist Parish LA Rev Var Ref Marathon Oil Corp Proj Remk, Subser 2017B-2 (Mandatory put 07/01/26) | | | |
| | |
| | |
| ME St Fin Auth Sol Wst Disp Rev Casella Waste Sys Proj, AMT (Mandatory put 08/01/25) (a) | | | |
| | |
| Howard Cnty MD Ref, Ser A | | | |
| MD St Econ Dev Corp Var Ref Constellation Energy Grp Proj Remk, Ser B (Mandatory put 04/03/28) | | | |
| | | | |
| MD St Hlth & Hgr Eductnl Facs Auth Rev Ref Stevenson Univ Proj, Ser A | | | |
| MD St Stadium Auth Rev Football Stadium Issue, Ser A | | | |
| | |
| | |
| MA St Bay Transprtn Auth Sales Tax Rev Unrefunded Subord Sustainable Bonds, BANS | | | |
| | |
| | | | |
| Detroit MI Downtown Dev Auth Tax Incr Rev Ref Catalyst Dev Proj, Ser A, AGM | | | |
| Great Lakes MI Wtr Auth Sewage Disposal Sys Rev Ref 2nd Lien, Ser C | | | |
| Great Lakes MI Wtr Auth Wtr Sply Sys Rev Ref Second Lien, Ser D | | | |
| Great Lakes MI Wtr Auth Wtr Sply Sys Rev Sr Lien Bonds, Ser B | | | |
| MI St Bldg Auth Rev Var Facs Prog Multi-Modal, Ser I (b) | | | |
| MI St Fin Auth Rev Ref Henry Ford Hlth Sys | | | |
| MI St Fin Auth Rev Ref Hosp McLaren Hlth Care, Ser A | | | |
| MI St Fin Auth Rev Ref Loc Govt Loan Prog Great Lakes Wtr Auth, Ser D4 | | | |
| MI St Fin Auth Rev Ref Sr Lien Great Lakes Wtr Auth, Ser C-6 | | | |
| MI St Fin Auth Rev Sr Lien Great Lakes Wtr Auth, Ser C-3, AGM | | | |
| MI St Fin Auth Rev Var Trinity Hlth Credit Grp, Ser B (Mandatory put 12/01/28) | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| MI St Strategic Fund Ltd Oblg Rev Var Sustainable Bond Recycled Brd Machine Proj, AMT (Mandatory put 10/01/26) | | | |
| Wayne Cnty MI Arpt Auth Rev Ref, Ser F, AMT | | | |
| | |
| | |
| Alexandria MN Indep Sch Dist #206 Ref Sch Bldg, Ser B | | | |
| Buffalo MN Indep Sch Dist #877 | | | |
| Hennepin Cnty MN Sales Tax Rev Ref 1st Lien Ballpark Proj, Ser A | | | |
| Minneapolis MN Hlth Care Sys Rev Var Allina Hlth Sys, Ser A (Mandatory put 11/15/28) | | | |
| Minneapolis MN Mf Rev Var Greenway Apartments Proj (Mandatory put 08/01/24) | | | |
| MN Muni Gas Agy Cmdy Sply Rev, Ser A | | | |
| | |
| | |
| MS St Busn Fin Corp Sol Wst Disp Rev Adj MS Pwr Co Proj Remk, AMT (b) | | | |
| MS St Busn Fin Corp Sol Wst Disp Rev Waste Mgmt Inc Proj Remk, AMT (Mandatory put 06/03/24) | | | |
| | |
| | |
| Kansas City MO Indl Dev Auth Arpt Spl Oblig Kansas City Intl Arpt, Ser A, AMT | | | |
| Met Saint Louis MO Swr Dist Wstwtr Sys Rev Ref & Impt, Ser B (Forward refunding maturity 05/01/25) | | | |
| MO St Hlth & Eductnl Facs Auth Hlth Facs Rev Ref Saint Lukes Hlth Sys Inc | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| Plaza at Noah’s Ark Cmnty Impt Dist MO Tax Incr & Impt Ref | | | |
| Saint Louis Cnty MO Pattonville Sch Dist #R-3 | | | |
| | |
| | |
| Forsyth MT Poll Control Rev Ref Puget Sound Energy Proj, Ser A (Mandatory put 03/01/24) | | | |
| | |
| Centrl Plains Energy Proj NE Gas Proj Rev Var Ref Proj #4, Ser A (Mandatory put 11/01/29) | | | |
| Muni Energy Agy of NE Ref | | | |
| Omaha NE Pub Dist Elec Rev Ref Sys, Ser A | | | |
| Omaha NE Pub Facs Corp Lease Rev, Ser A | | | |
| | |
| | |
| Clark Cnty NV Sch Dist Bldg Cr, Ser B, AGM | | | |
| Las Vegas NV Spl Impt Dist #808 & #810 Ref | | | |
| Las Vegas NV Spl Impt Dist #812 Loc Impt Summerlin Vlg 24 | | | |
| Las Vegas NV Spl Impt Dist #816 Summerlin Vlg 22 | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Las Vegas NV Spl Impt Dist #816 Summerlin Vlg 22 | | | |
| Reno NV Capital Impt Rev Ref, Ser A-1, AGM | | | |
| | |
| | |
| Natl Fin Auth NH Pollution Control Rev Ref NY St Elec & Gas Corp Proj, Ser A, AMT | | | |
| | |
| Casino Reinvestment Dev Auth NJ Luxury Tax Rev Ref, AGM | | | |
| Gloucester Twp NJ, Ser A, BANS | | | |
| | | | |
| | | | |
| NJ St Covid-19 Go Emergency Bonds, Ser A | | | |
| NJ St Econ Dev Auth Rev Portal N Bridge Proj NJ Transit Transprtn Proj Bonds, Ser A | | | |
| NJ St Econ Dev Auth Rev Ref Sch Facs Constr, Ser PP | | | |
| NJ St Hlth Care Facs Fing Auth Rev Ref Rwj Barnabas Hlth Oblig Grp Issue, Ser B-2 (Mandatory put 07/01/25) | | | |
| NJ St Hlth Care Facs Fing Auth Rev Ref Rwj Barnabas Hlth Oblig Grp Issue, Ser B-3 (Mandatory put 07/01/26) | | | |
| NJ St Hsg & Mtge Fin Agy Rev Ref Sf Hsg, Ser D, AMT | | | |
| NJ St Transprtn Trust Fund Auth Cap Apprec Transprtn Sys, Ser C, AMBAC | | | |
| Tobacco Stlmt Fing Corp NJ Ref, Ser A | | | |
| | |
| | |
| Farmington NM Poll Control Rev Var Ref Pub Svc Co NM San Juan Proj Remk, Ser D (Mandatory put 06/01/28) | | | |
| | |
| Chautauqua Cnty NY Capital Res Corp Exempt Facs Rev Var Ref NRG Energy Proj Remk (Mandatory put 04/03/28) | | | |
| | | | |
| New York City NY Hsg Dev Corp Mf Hsg Rev Sustainable Dev Bonds, Ser F-2A (Mandatory put 12/22/26) | | | |
| New York City NY Muni Wtr Fin Auth Wtr & Swr Sys Rev 2nd General Resolution, Ser DD | | | |
| New York City NY Transitional Fin Auth Bldg Aid Rev Ref Fiscal 2018, Ser S-1 | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Ref American Airls Inc John F Kennedy Intl Arpt Proj, AMT | | | |
| Onondaga NY Civic Dev Corp Le Moyne Clg Proj | | | |
| Port Auth of NY & NJ NY Ref, 194th Ser | | | |
| | |
| | |
| Charlotte Mecklenburg NC Hosp Auth Hlth Care Sys Rev Var Atrium Hlth Remk, Ser D (Mandatory put 06/15/27) | | | |
| Charlotte NC Arpt Rev, Ser A | | | |
| Columbus Cnty NC Indl Facs & Poll Control Fing Auth Rev Var Ref Intl Paper Co Proj, Ser A (Mandatory put 06/16/25) | | | |
| NC St Capital Facs Fin Agy Eductnl Facs Rev Ref High Point Univ | | | |
| NC St Grant Anticipation Rev Vehcl, GARVEE | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| North Carolina (Continued) | |
| NC St Med Care Commn Hosp Rev Caromont Hlth, Ser B (Mandatory put 02/01/26) | | | |
| NC St Turnpike Auth, BANS | | | |
| Raleigh Durham NC Arpt Auth Arpt Rev Ref, Ser A, AMT | | | |
| Raleigh Durham NC Arpt Auth Arpt Rev Ref, Ser A, AMT | | | |
| | |
| | |
| Cass Cnty ND Jt Wtr Res Dist, Ser A | | | |
| | |
| NE OH Med Univ Gen Recpts Ref, Ser A | | | |
| OH St Air Quality Dev Auth American Elec Pwr Co Proj Remk, Ser A (Mandatory put 10/01/29) | | | |
| OH St Air Quality Dev Auth OH Vly Elec Corp Proj Remk, Ser C (Mandatory put 11/04/25) | | | |
| OH St Air Quality Dev Auth Ref American Elec Pwr Company Proj Remk, Ser B, AMT (Mandatory put 10/01/24) | | | |
| OH St Air Quality Dev Auth Var OH Vly Elec Corp Proj Remk, Ser B (Mandatory put 11/01/24) | | | |
| OH St Air Quality Dev Auth Var Ref Duke Energy Corp Proj, Ser A, AMT (Mandatory put 06/01/27) | | | |
| OH St Hosp Fac Rev Ref Cleveland Clinic Hlth Sys, Ser A | | | |
| OH St Hosp Fac Rev Ref Cleveland Clinic Hlth Sys, Ser A | | | |
| OH St Hosp Rev Var Cleveland Clinic Hlth Sys Remk, Ser C (Mandatory put 05/01/28) | | | |
| OH St Hosp Rev Var Ref Univ Hosps Hlth Sys Inc, Ser A (b) | | | |
| | | | |
| | |
| | |
| Canadian Cnty OK Eductnl Facs Auth Educ Facs Lease Rev Yukon Pub Sch Proj | | | |
| Oklahoma Cnty OK Fin Auth Eductnl Facs Lease Rev Midwest City De City Pub Schs Proj | | | |
| | |
| | |
| OR St Article XI-P Schs Dist Capital Projs, Ser G | | | |
| Port of Portland OR Arpt Rev Portland Intl Arpt, Ser 25B, AMT | | | |
| Port of Portland OR Arpt Rev Ref Portland Intl Arpt, Ser 23 | | | |
| Port of Portland OR Arpt Rev, Ser 24B, AMT | | | |
| Salem OR Hosp Fac Auth Rev Ref Capital Manor Proj | | | |
| Salem OR Hosp Fac Auth Rev Ref Capital Manor Proj | | | |
| Salem OR Hosp Fac Auth Rev Ref Capital Manor Proj | | | |
| Union Cnty OR Hosp Fac Auth Grande Ronde Hosp | | | |
| Union Cnty OR Hosp Fac Auth Grande Ronde Hosp | | | |
| | |
| | |
| Allegheny Cnty PA Indl Dev Auth Envrnmtl Impt Rev Ref United States Steel Corp Proj | | | |
| Cmwlth Fing Auth PA Tobacco Master Stlmt Payment Rev Bonds | | | |
| Cumberland Cnty PA Muni Auth Prerefunded Ref Diakon Lutheran Ministries Proj (Pre-refunded maturity 01/01/25) | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| E Hempfield Twp PA Indl Dev Auth Ref Willow Vly Cmntys Proj | | | |
| E Hempfield Twp PA Indl Dev Auth Ref Willow Vly Cmntys Proj | | | |
| E Hempfield Twp PA Indl Dev Auth Ref Willow Vly Cmntys Proj | | | |
| E Hempfield Twp PA Indl Dev Auth Ref Willow Vly Cmntys Proj | | | |
| Erie PA Hgr Edu Bldg Auth AICUP Fing Prog Gannon Uni Proj Ref, Ser TT1 | | | |
| Erie PA Hgr Edu Bldg Auth AICUP Fing Prog Gannon Uni Proj Ref, Ser TT1 | | | |
| Erie PA Hgr Edu Bldg Auth AICUP Fing Prog Gannon Uni Proj Ref, Ser TT1 | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Lehigh Cnty PA Gen Purp Auth Revs Ref Lehigh Carbon Cmnty Clg, Ser 2016, BAM | | | |
| Lehigh Cnty PA Indl Dev Auth Ref Ppl Elec Util Corp Proj 2016 Remk, Ser B | | | |
| Lehigh Cnty PA Indl Dev Auth Ref Ppl Elec Util Corp Proj Remk, Ser A | | | |
| Montgomery Cnty PA Indl Dev Auth Ref Waverly Heights Ltd Proj | | | |
| Northampton Cnty PA Gen Purp Auth Clg Rev Ref Moravian Clg | | | |
| Northampton Cnty PA Gen Purp Auth Clg Rev Ref Moravian Clg | | | |
| Northampton Cnty PA Gen Purp Auth Clg Rev Ref Moravian Clg | | | |
| PA St Econ Dev Fing Auth Rev Ref UPMC | | | |
| PA St Econ Dev Fing Auth Solid Waste Disposal Rev Var Draw Down Rep Svcs Inc Remk, Ser B-2, AMT (Mandatory put 07/15/24) (b) | | | |
| PA St Econ Dev Fing Auth Solid Waste Disposal Rev Var Rep Svcs Inc Proj Remk, Ser B-1, AMT (Mandatory put 04/15/24) (b) | | | |
| PA St Econ Dev Fing Auth T/E Priv Activity Rev The Penndot Major Bridges Package One Proj P3 Proj, AMT | | | |
| PA St Hsg Fin Agy Sf Mtge Rev Non Ace, Ser 123B | | | |
| | | | |
| PA St Turnpike Commn Turnpike Rev Ref Mtr License Fund Enh Trn Pke Subord | | | |
| PA St Turnpike Commn Turnpike Rev Ref Sub | | | |
| PA St Turnpike Commn Turnpike Rev Ref Sub, Ser A | | | |
| PA St Turnpike Commn Turnpike Rev Ref Sub, Ser B | | | |
| PA St Turnpike Commn Turnpike Rev, Ser A-1 | | | |
| | | | |
| Philadelphia PA Auth for Indl Dev Chrt Sch Rev Ref String Theory Chrt Sch Proj (a) | | | |
| Philadelphia PA Auth for Indl Dev Chrt Sch Rev Ref String Theory Chrt Sch Proj (a) | | | |
| Philadelphia PA Auth for Indl Dev Temple Univ Rev Ref, 1st Ser 2015 | | | |
| Philadelphia PA Ref, Ser A | | | |
| | |
| | |
| Puerto Rico Cmwlth Restructured, Ser A, CABS | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1, CABS | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1, CABS | | | |
| | |
| | |
| Providence RI Pub Bldgs Auth Rev, Ser A, AGM | | | |
| | |
| Berkeley Cnty SC Assmnt Rev Nexton Impt Dist | | | |
| Greenville Cnty SC Sch Dist Installment Pur Rev Ref SC Proj | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Ref The Woodlands at Furman | | | |
| SC St Pub Svc Auth Rev Prerefunded Ref, Ser A | | | |
| SC St Pub Svc Auth Rev Unrefunded Ref, Ser A | | | |
| | |
| | |
| SD St Hlth & Eductnl Facs Auth Ref Sanford Oblig Grp | | | |
| SD St Hlth & Eductnl Facs Auth Ref Sanford Oblig Grp | | | |
| SD St Hlth & Eductnl Facs Auth Ref Westhills Vlg Retmnt Cmnty Issue | | | |
| SD St Hsg Dev Auth Ref Homeownership Mtge, Ser E, AMT | | | |
| | |
| | |
| Met Govt Nashville & Davidson Cnty TN Hlth & Eductnl Fac Brd Belmont Univ | | | |
| Met Govt Nashville & Davidson Cnty TN Hlth & Eductnl Fac Brd Trevecca Nazarene Univ Proj, Ser B | | | |
| Met Nashville TN Arpt Auth Arpt Rev, Ser B, AMT | | | |
| Montgomery Cnty TN Ref, Ser A | | | |
| TN St Energy Acq Corp Gas Rev (Mandatory put 11/01/25) | | | |
| TN St Energy Acq Corp Gas Rev Var Ref Gas Proj, Ser A-1 (Mandatory put 05/01/28) | | | |
| TN St Energy Acq Corp Gas Rev, Ser A | | | |
| | |
| | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Ref Uplift Edu, Ser A | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Trinity Basin Preparatory Inc | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Trinity Basin Preparatory Inc | | | |
| Arlington TX Hsg Fin Corp Mf Hsg Rev Var 6900 Matlok Road (Mandatory put 04/01/27) | | | |
| Austin TX Arpt Sys Rev, AMT | | | |
| Austin TX Arpt Sys Rev, AMT | | | |
| | | | |
| Centrl TX Regl Mobility Auth Rev, Ser C | | | |
| Clifton TX Hgr Edu Fin Corp Edu Rev Idea Pub Schs, Ser B | | | |
| Club Muni Mgmt Dist #1 TX Spl Assmnt Rev Impt Area #2 Proj (a) | | | |
| Corpus Christi TX Util Sys Rev Junior Lien, Ser B | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Crandall TX Spl Assmnt Rev Cartwright Ranch Pub Impt Dt Impt Area #1 Proj (a) | | | |
| Dallas Fort Worth TX Intl Arpt Rev Ref, Ser B | | | |
| Denton Cnty TX Hsg Fin Corp Var Pathway on Woodrow Apts (Mandatory put 02/01/25) | | | |
| Fort Bend Cnty TX Muni Util Dist #182, BAM | | | |
| Fort Bend Cnty TX Muni Util Dist #184, BAM | | | |
| Fort Bend Cnty TX Muni Util Dist #184, BAM | | | |
| Fort Bend TX Indep Sch Dist Ref | | | |
| Fort Bend TX Indep Sch Dist Var Remk, Ser A (Mandatory put 08/01/24) | | | |
| Galveston Cnty TX Muni Util Dist #54 Ref | | | |
| Galveston Cnty TX Muni Util Dist #54 Ref | | | |
| Galveston TX Wharves & Terminal Rev Wharves & Terminal First Lien, AMT | | | |
| | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Ref Rev Memorial Herman Hlth Sys, Ser A | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Rev Memorial Herman Hlth Sys, Ser A | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Rev Var Memorial Hermann Hlth System, Ser B-2 (Mandatory put 12/01/24) | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Thermal Util Re Ref Teco Proj | | | |
| Harris Cnty TX Muni Util Dist #536, BAM | | | |
| Harris Cnty TX Muni Util Dist #536, BAM | | | |
| | | | |
| Houston TX Arpt Sys Rev Ref Sub, Ser C, AMT | | | |
| Houston TX Arpt Sys Rev Ref Subord Lien, Ser A, AMT, AGM | | | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Terminal Impt Proj, Ser B-2, AMT | | | |
| Houston TX Arpt Sys Rev Sub, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev Sub, Ser A, AMT | | | |
| Houston TX Cmnty Clg Ref, Ser A | | | |
| Kyle TX Spl Assmnt Rev 6 Creeks Pub Impt Dist Impt Area #1 (a) | | | |
| La Vernia TX Hgr Edu Fin Corp Edu Rev Meridian World Sch, Ser A (Pre-refunded maturity 08/15/24) (a) | | | |
| Love Field TX Arpt Modernization Corp Gen Arpt Rev, AMT | | | |
| Love Field TX Arpt Modernization Corp Gen Arpt Rev, AMT | | | |
| Lower CO River TX Auth Trans Contract Rev Ref LCRA Trans Svcs Corp Proj | | | |
| Mission TX Econ Dev Corp Sol Wst Disp Rev Var Ref Rep Svcs Inc Proj Remk, AMT (Mandatory put 05/01/24) (b) | | | |
| Montgomery Cnty TX Muni Util Dist #105, BAM | | | |
| N Parkway Muni Mgmt Dist #1 TX Contract Rev Legacy Hills Pub Impt Dt Phase #1A-1B Impts (a) | | | |
| N TX Tollway Auth Rev Ref 2nd Tier, Ser A | | | |
| N TX Tollway Auth Rev Ref 2nd Tier, Ser B | | | |
| N TX Tollway Auth Rev Ref First Tier Bonds, Ser A | | | |
| N TX Tollway Auth Rev Ref Second Tier Bonds, Ser C | | | |
| N TX Tollway Auth Rev Ref Sys 1st Tier, Ser A | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| N TX Tollway Auth Rev Second Tier, Ser B | | | |
| Rockwall Cnty TX Muni Util Dist #8, AGM | | | |
| Southmost TX Regl Wtr Auth Wtr Sply Contract Rev Ref Desalination Plant Proj, BAM | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Ref Baylor Scott & White Hlth Proj, Ser A | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Var Baylor Scott & White Hlth Proj, Ser E (Mandatory put 05/15/26) | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Rev Ref Christus Hlth, Ser B | | | |
| Travis Cnty TX Hsg Fin Corp Mf Hsg Rev Var Kensington Apts (Mandatory put 08/01/25) | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser A (Mandatory put 01/01/30) | | | |
| TX St Wtr Dev Brd St Wtr Implementation Fund, Ser A | | | |
| Univ of Houston TX Univ Revs Ref Consol, Ser C | | | |
| Univ of TX TX Permanent Univ Fnd Bonds, Ser A | | | |
| Univ of TX TX Univ Revs Ref, Ser H | | | |
| Univ of TX TX Univ Revs, Ser D | | | |
| Viridian TX Muni Mgmt Dist Unlimited Tax Road Impt Bonds, BAM | | | |
| Williamson Cnty TX Muni Util Dist #10 Ref, BAM | | | |
| | |
| | |
| Salt Lake City UT Arpt Rev, Ser A, AMT | | | |
| Salt Lake City UT Arpt Rev, Ser A, AMT | | | |
| Salt Lake City UT Arpt Rev, Ser A, AMT | | | |
| UT Cnty UT Hosp Rev IHC Hlth Svcs Inc, Ser B-1 (Mandatory put 08/01/24) | | | |
| | |
| | |
| VT St Econ Dev Auth Solid Wst Disp Rev Var Casella Wst Sys Inc Remk, AMT (Mandatory put 04/03/28) (a) | | | |
| | |
| Arlington Cnty VA Indl Dev Auth Mf Rev Park Shirlington Apartments, Ser A | | | |
| Fairfax Cnty VA Redev & Hsg Auth Mf Hsg Rev Var Dominion Square N Proj (Mandatory put 01/01/28) | | | |
| Hampton Roads VA Santn Dist Wstwtr Rev Prerefunded Sub, Ser A (Pre-refunded maturity 08/01/26) | | | |
| Henrico Cnty VA Econ Dev Auth Rsdl Care Fac Rev Ref Westminster Canterbury Proj | | | |
| | | | |
| Louisa VA Indl Dev Auth Poll Control Rev Var VA Elec & Pwr Co Proj Remk, Ser A (Mandatory put 10/01/27) | | | |
| | | | |
| Richmond VA Redev & Hsg Auth Mf Rev Var Townes at River South (Mandatory put 03/01/25) | | | |
| VA Clg Bldg Auth Eductnl Facs Rev Ref Regent Univ Proj | | | |
| VA St Pub Bldg Auth Pub Facs Rev, Ser C, AMT | | | |
| VA St Res Auth Clean Wtr Rev Ref Revolving Fund, Ser B | | | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| VA St Small Busn Fing Auth Rev Ref Sr Lien 95 Express Lanes LLC Proj, AMT | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Temps 50Sm Westminster Canterbury on Chesapeake Bay, Ser B-3 | | | |
| Wise Cnty VA Indl Dev Auth Sol Wst & Sewage Disp Rev VA Elec & Pwr Co Remk, Ser A (Mandatory put 05/31/24) | | | |
| | |
| | |
| WA St Hlth Care Facs Auth Ref Seattle Cancer Care Alliance | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Heron’s Key, Ser A (Pre-refunded maturity 07/01/25) (a) | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Ref Emerald Heights Proj, Ser A | | | |
| | |
| | |
| WV St Econ Dev Auth Sol Wst Disp Facs Var Arch Res Proj, AMT (Mandatory put 07/01/25) | | | |
| WV St Econ Dev Auth Sol Wst Disp Facs Var Sr Arch Res Proj, AMT (Mandatory put 07/01/25) | | | |
| | |
| | |
| Oak Creek WI, Ser B, NANS | | | |
| Pub Fin Auth WI Edu Rev Coral Acdmy of Science Las Vegas, Ser A | | | |
| Pub Fin Auth WI Eductnl Rev Piedmont Cmnty Chrt Sch | | | |
| Pub Fin Auth WI Hosp Rev Ref Carson Vly Med Ctr, Ser A (a) | | | |
| Pub Fin Auth WI Poll Control Rev Var Ref Duke Engery Progress Proj, Ser A-1 (Mandatory put 10/01/26) | | | |
| Pub Fin Auth WI Retmnt Fac Rev Ref United Methodist Retmnt Homes, Ser A | | | |
| Pub Fin Auth WI Retmnt Fac Rev Ref United Methodist Retmnt Homes, Ser A | | | |
| Pub Fin Auth WI Retmnt Fac Rev Ref United Methodist Retmnt Homes, Ser A | | | |
| Pub Fin Auth WI Rev Unrefunded Roseman Univ Hlth Sciences Proj (a) | | | |
| Pub Fin Auth WI Sr Living Rev Rose Villa Proj, Ser A (Pre- refunded maturity 11/15/24) (a) | | | |
| | | | |
| WI St Clean Wtr Rev Ref (Pre-refunded maturity 06/01/24) | | | |
| WI St Hlth & Eductnl Facs Auth Rev Ref Ascension Hlth Credit Grp, Ser A | | | |
| WI St Hlth & Eductnl Facs Auth Rev Three Pillars Sr Living Cmntys, Ser A | | | |
| | |
See Notes to Financial Statements
First Trust Short Duration Managed Municipal ETF (FSMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Consol Muni Elec Pwr Sys WY Jt Pwrs Brd Sys Jt Pwrs Brd Ref Electrical Sys Proj | | | |
| Consol Muni Elec Pwr Sys WY Jt Pwrs Brd Sys Jt Pwrs Brd Ref Electrical Sys Proj | | | |
| | |
|
|
| Total Investments — 98.8% | |
| | |
| Net Other Assets and Liabilities — 1.2% | |
| | |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2024, securities noted as such amounted to $19,294,577 or 4.6% of net assets. |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| |
Abbreviations throughout the Portfolio of Investments: |
| – Assured Guaranty Municipal Corp. |
| – American Municipal Bond Assurance Corp. |
| – Alternative Minimum Tax |
| |
| – Bond Anticipation Notes |
| – Capital Appreciation Bonds |
| – Certificates of Participation |
| – Grant Anticipation Revenue Vehicle |
| – Note Anticipation Notes |
| – National Public Finance Guarantee Corp. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
| | | | |
|
| | |
| Black Belt Energy Gas Dist AL Gas Prepay Rev Proj #5, Ser A-1 | | | |
| Black Belt Energy Gas Dist AL Gas Prepay Rev Proj No. 4, Ser A-1 | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 | | | |
| Lower AL Gas Dist Gas Proj Rev Bonds Proj 2 (Mandatory put 12/01/25) | | | |
| SE AL St Gas Sply Dist Gas Sply Rev Proj #2, Ser A (Mandatory put 06/01/24) | | | |
| Tender Option Bond Trust Receipts / Ctfs Various States JPM Putters Xm1090, Ser 2022 (a) (b) | | | |
| | |
| | |
| AZ St Transprtn Brd Excise Tax Rev Ref | | | |
| Phoenix AZ Civic Impt Corp Arpt Rev Ref Sr Lien, AMT | | | |
| Phoenix AZ Civic Impt Corp Wtr Sys Rev Junior Lien, Ser A (Pre- refunded maturity 07/01/24) | | | |
| | |
| | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Var Sustainable Bonds Clean Energy Proj, Ser C | | | |
| CA St Infra & Econ Dev Bank Rev Brightline E Passenger Rail Proj Remk, Ser A, AMT (Mandatory put 01/30/25) (a) (b) | | | |
| CA St Muni Fin Auth Sol Wst Disp Rev Var Rep Svcs Inc Proj Remk, Ser B, AMT (Mandatory put 07/15/24) (b) | | | |
| | |
| | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser B-1 (Mandatory put 08/01/25) | | | |
| CO St Hlth Facs Auth Rev Ref Sanford Hlth, Ser A | | | |
| CO St Ref Projs, Ser A, COPS | | | |
| Denver City & Cnty CO Arpt Rev Sub Sys, Ser B | | | |
| | |
| | |
| | | | |
| District of Columbia — 0.6% | |
| DC Rev Federal Hwy Grant Anticipation Rev Bonds, GARVEE | | | |
| | |
| FL St Brd of Edu Pub Edu Ref Capital Outlay, Ser A | | | |
| Harmony FL CDD Capital Impt Rev Ref | | | |
| JEA FL Wtr & Swr Rev Ref, Ser A | | | |
| Lakes By The Bay S FL CDD Assmnt Ref | | | |
| Lakewood Ranch FL Stewardship Dist Spl Assmnt Rev Ref Country Club E Proj, AGM | | | |
| Miami-Dade Cnty FL Hsg Fin Auth Mf Hsg Rev Var Cutler Vista (Mandatory put 09/01/25) | | | |
| Miami-Dade Cnty FL Hsg Fin Auth Mf Hsg Rev Var Emerald Dunes, Ser B (Mandatory put 09/01/25) | | | |
| Miami-Dade Cnty FL Hsg Fin Auth Mf Hsg Rev Var Running Brook Apartments (Mandatory put 01/01/26) | | | |
| Miami-Dade Cnty FL Sch Brd Ref, Ser B, COPS | | | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Miami-Dade Cnty FL Sch Dist, TANS | | | |
| Miami-Dade Cnty FL Seaport Rev Ref Sr Bonds, Ser A, AMT | | | |
| Santa Rosa Cnty Sch Brd, Ser A, AGM, COPS | | | |
| Tampa FL Capital Impt Cigarette Tax Allocation H Lee Moffitt Cancer Ctr Proj, Ser A | | | |
| | |
| | |
| Atlanta GA Arpt Rev Ref, Ser B, AMT | | | |
| Atlanta GA Arpt Rev, Ser B, AMT | | | |
| Atlanta GA Wtr & Wstwtr Rev Ref, Ser C | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Vogtle, 1st Ser (b) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var Ref GA Pwr Co Plant Vogtle Proj (b) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev Var, Ser B (Mandatory put 12/02/24) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B | | | |
| Met Atlanta GA Rapid Transit Auth Sales Tax Rev Ref, Ser A | | | |
| Monroe Cnty GA Dev Auth Poll Control Rev GA Pwr Co Plant Scherer Proj Remk, 1st Ser | | | |
| | |
| | |
| HI St Arpts Sys Rev Ref, Ser B, AMT | | | |
| | |
| DuPage & Cook Cntys IL Cmnty Consolidated Sch Dist #181 Hinsdale Ref Sch, Ser B | | | |
| IL St Fin Auth Centegra Hlth Sys, Ser A (Pre-refunded maturity 09/01/24) | | | |
| IL St Fin Auth Hlth Svcs Facs Lease Rev Univ of IL Hlth Svcs Fac Proj | | | |
| IL St Fin Auth Rev Ref Ann & Robert H Lurie Childrens Hosp | | | |
| IL St Fin Auth Rev Ref Rush Univ Med Ctr, Ser A | | | |
| IL St Hsg Dev Auth Mf Hsg Rev Var S Shore (Mandatory put 06/01/25) | | | |
| | | | |
| Sales Tax Securitization Corp IL Sr, Ser D | | | |
| | | | |
| | |
| | |
| IN St Fin Auth Econ Dev Rev Ref Rep Svcs Inc Proj Remk, Ser A, AMT (Mandatory put 03/01/24) (b) | | | |
| | |
| IA St Fin Auth Sol Wst Facs Rev Var Sustainable Gevo NW Rng LLC Renewable Natrl Gas Proj, AMT (Mandatory put 04/01/24) | | | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Dodge City KS Temp Nts, Ser 2023-1 | | | |
| | |
| Berea KY Eductnl Facs Rev Var Berea Clg Proj, Ser A (b) | | | |
| KY Bond Dev Corp Indl Bldg Rev KY Communications Network Auth Proj, BAM | | | |
| KY St Property & Bldgs Commn Rev Ref Proj #128, Ser A | | | |
| KY St Property & Bldgs Commn Rev Ref Proj #128, Ser A | | | |
| KY St Pub Energy Auth Gas Sply Rev Gas Sply, Ser C-1 (Mandatory put 06/01/25) | | | |
| KY St Pub Energy Auth Gas Sply Rev, Ser A (Mandatory put 04/01/24) | | | |
| Nthrn KY Wtr Dist Rev Ref, Ser B | | | |
| Paducah Elec Plant Brd Ref Rev, Ser A, AGM | | | |
| | |
| | |
| E Baton Rouge Parish LA Swr Commn Rev Ref, Ser B (Pre- refunded maturity 02/01/25) | | | |
| | | | |
| LA St Loc Govt Envrnmntl Facs & Cmnty Dev Auth Rev Var American Biocarbon Ct LLC Proj Remk, AMT (Mandatory put 03/22/24) | | | |
| LA St Pub Facs Authsol Wst Disp Fac Rev Var Elementus Minerals LLC Proj (Mandatory put 11/01/25) (a) | | | |
| New Orleans LA Wtr Rev Ref (Pre-refunded maturity 12/01/24) | | | |
| New Orleans LA Wtr Rev Ref (Pre-refunded maturity 12/01/24) | | | |
| New Orleans LA Wtr Rev Ref (Pre-refunded maturity 12/01/24) | | | |
| Saint James Parish LA Rev Var Nustar Logistics LP Proj Remk, Ser 2011 (Mandatory put 06/01/25) (a) | | | |
| | |
| | |
| ME St Fin Auth Sol Wst Disp Rev Casella Waste Sys Proj, AMT (Mandatory put 08/01/25) (a) | | | |
| ME St Govtl Facs Auth, Ser B | | | |
| | |
| | |
| MD St Stadium Auth Rev Football Stadium Issue, Ser A | | | |
| Montgomery Cnty MD, Ser A | | | |
| | |
| | |
| MA St Clg Bldg Auth Ref, Ser D (Pre-refunded maturity 05/01/25) | | | |
| MA St Dev Fin Agy Rev Ref Boston Med Ctr Sustainability Bonds, Ser G | | | |
| | | | |
| Nauset MA Regl Sch Dist, BANS | | | |
| | |
| | |
| Great Lakes MI Wtr Auth Wtr Sply Sys Rev Junior Lien Bond, Ser B | | | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| MI St Bldg Auth Rev Ref Facilities Prog State of MI, Ser I | | | |
| | | | |
| | |
| | |
| MN St Hsg Fin Agy Calvary Ctr Apartments, Ser D | | | |
| MN St Hsg Fin Agy Phalen Vlg, Ser E | | | |
| Saint Paul MN Hsg & Redev Auth Mf Hsg Rev Var Dale Street Proj (Mandatory put 06/01/24) | | | |
| | |
| | |
| MO St Pub Util Commn Rev Nts | | | |
| | |
| Henderson NV Pub Impt Trust Rev Ref Touro Clg & Univ Sys Oblig Grp (Pre-refunded maturity 07/01/24) | | | |
| | |
| Evesham Twp NJ, Ser A, BANS | | | |
| Hudson Cnty NJ Impt Auth Loc Unit Loan Prog, Ser A | | | |
| Jersey City NJ, Ser C, BANS | | | |
| Newark NJ Ref, Ser A, AGM | | | |
| NJ St Econ Dev Auth Rev Ref, Ser B | | | |
| NJ St Econ Dev Auth Rev Ref, Ser XX | | | |
| NJ St Hgr Edu Asst Auth Stdt Loan Rev Sr, Ser 2015-1A, AMT | | | |
| NJ St Hlth Care Facs Fing Auth Rev Rwj Barnabas Hlth Obligated Grp Issue, Ser A | | | |
| Robbinsville Twp NJ Mercer Cnty, Ser B, BANS | | | |
| | |
| | |
| | | | |
| New York City NY Hsg Dev Corp Mf Hsg Rev Sustainable Dev Bonds Var, Ser F-2 (Mandatory put 07/01/25) | | | |
| New York City NY Transitional Fin Auth Rev Ref Sub Multi- Modal, Ser B-1 | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Ref Terminal 4 JFK Intl Arpt Proj, Ser A, AMT | | | |
| Onondaga NY Civic Dev Corp Le Moyne Clg Proj | | | |
| Phelps Clifton Springs NY Centrl Sch Dist, BANS | | | |
| Suffolk Cnty NY, Ser A, BAM | | | |
| Triborough NY Bridge & Tunnel Auth Payroll Mobility Tax, Ser A, BANS | | | |
| Triborough NY Bridge & Tunnel Auth Payroll Mobility Tax, Ser B, BANS | | | |
| Waterloo NY Centrl Sch Dist, BANS | | | |
| | |
| | |
| NC St Dept Grant Anticipation Rev | | | |
| | |
| Cass Cnty ND Jt Wtr Res Dist, Ser A | | | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Franklin Cnty OH Rev Var CHE Trinity Hlth Cred Grp Remk, Ser OH (Mandatory put 05/01/24) (b) | | | |
| | | | |
| OH St Air Quality Dev Auth Ref American Elec Pwr Company Proj Remk, Ser B, AMT (Mandatory put 10/01/24) | | | |
| OH St Air Quality Dev Auth Ref American Elec Pwr Company Proj Remk, Ser C, AMT (Mandatory put 10/01/24) | | | |
| OH St Hosp Fac Rev Ref Cleveland Clinic Hlth Sys, Ser A | | | |
| | |
| | |
| Lane Cnty OR Sch Dist #4J Eugene (Pre-refunded maturity 06/15/24) | | | |
| OR St Article Xi Q State Projs, Ser J | | | |
| Portland OR Wtr Sys Rev Ref Second Lien, Ser B | | | |
| | |
| | |
| | | | |
| PA St Econ Dev Fing Auth Solid Waste Disposal Rev Var Rep Svcs Inc Proj Remk, Ser B-1, AMT (Mandatory put 04/15/24) (b) | | | |
| PA St Econ Dev Fing Auth Solid Waste Disposal Rev Var Waste Mgmt Inc Proj Remk, AMT (Mandatory put 05/01/24) (b) | | | |
| PA St Econ Dev Fing Auth UPMC Rev Ref, Ser B | | | |
| PA St Econ Dev Fing Auth UPMC Rev, Ser A-2 | | | |
| PA St Turnpike Commn Turnpike Rev, Ser A (Forward refunding maturity 12/01/24) | | | |
| Philadelphia PA Arpt Rev Ref, Ser B, AMT | | | |
| Philadelphia PA Redev Auth Ref Neighborhood Transform Preservation Initiative, Ser C | | | |
| Philadelphia PA Sch Dist Trans, Ser A | | | |
| | | | |
| Pottsville PA Hosp Auth Hlth Ctr Rev Schuylkill Hlth Sys Proj (a) | | | |
| Riverside PA Sch Dist Ref, BAM | | | |
| Riverside PA Sch Dist Ref, BAM | | | |
| | | | |
| St Pub Sch Bldg Auth PA Lease Rev Ref Sch Philadelphia Sch Dist Proj, Ser A, BAM | | | |
| Tender Option Bond Trust Receipts / Ctfs Various States JPM Putters Xm1120, AGM (a) (b) | | | |
| | |
| | |
| RI St Hlth & Eductnl Bldg Corp Pub Schs Rev, Ser D, BAM | | | |
| | |
| Cnty Sq Redev Corp SC Installment Pur Rev Greenville Co SC Proj, BANS | | | |
| Greenville Cnty SC Sch Dist Installment Pur Rev Ref SC Proj | | | |
| Patriots Energy Grp Fing Agy SC Gas Sply Rev, Ser A (Mandatory put 02/01/24) | | | |
| | | | |
| | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Johnson City TN Hlth & Eductnl Facs Brd Hosp Rev Ref Ballad Hlth, Ser A | | | |
| Knoxville TN Wstwtr Sys Rev, Ser A | | | |
| Tennergy Corp TN Gas Rev, Ser A (Mandatory put 10/01/24) | | | |
| TN St Energy Acq Corp Gas Rev, Ser A | | | |
| TN St, Ser A (Pre-refunded maturity 09/01/24) | | | |
| | |
| | |
| Austin TX Wtr & Wstwtr Sys Rev Ref | | | |
| Centrl TX Regl Mobility Auth Rev Ref | | | |
| Cypress Fairbanks Indep Sch Dist Ref, Ser A | | | |
| Dallas Fort Worth TX Intl Arpt Rev Ref, Ser B | | | |
| Dallas Fort Worth TX Intl Arpt Rev Ref, Ser B | | | |
| Dallas TX Area Rapid Transit Sales Tax Rev Ref Sr Lien | | | |
| Duncanville TX Indep Sch Dist Sch Bldg (Pre-refunded maturity 02/15/25) | | | |
| Fort Bend TX Indep Sch Dist Var Remk, Ser A (Mandatory put 08/01/24) | | | |
| Fort Worth TX Wtr & Swr Rev Impt Ref, Ser A | | | |
| Galveston TX Wharves & Terminal Rev First Lien, AMT | | | |
| Galveston TX Wharves & Terminal Rev First Lien, AMT | | | |
| Georgetown TX Indep Sch Dist | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Rev Var Ref Memorial Hermann Hlth Sys, Ser C-2 (Mandatory put 12/01/24) | | | |
| Harris Cnty TX Toll Road Rev Ref, Ser A | | | |
| Houston TX Ref Pub Impt, Ser A | | | |
| Houston TX Util Sys Rev Ref Comb 1st Lien, Ser C | | | |
| Houston TX Util Sys Rev Rev Ref First Lien, Ser A | | | |
| Love Field TX Arpt Modernization Corp Gen Arpt Rev, AMT | | | |
| Lower CO River TX Auth Rev Ref | | | |
| Lower CO River TX Auth Rev Ref, Ser A | | | |
| Mansfield TX Indep Sch Dist Ref, Ser B | | | |
| Met Transit Auth of Harris Cnty Sales & Use Tax Rev, Ser D | | | |
| Mission TX Econ Dev Corp Sol Wst Disp Rev Var Ref Rep Svcs Inc Proj Remk, AMT (Mandatory put 05/01/24) (b) | | | |
| Montgomery Cnty TX Muni Util Dist #105, BAM | | | |
| N TX St Muni Wtr Dist Wtr Sys Rev Ref & Impt | | | |
| New Hope Cultural Edu Facs Fin Corp TX Stdt Hsg Rev Chf Collegiate Hsg Tarleton St Univ Proj, Ser A (Pre-refunded maturity 04/01/25) | | | |
| | | | |
| Port Auth of Houston of Harris Cnty TX Ref First Lien | | | |
| Socorro TX Indep Sch Dist Ref, Ser A (Pre-refunded maturity 08/15/24) | | | |
| Tarrant Cnty TX Hosp Dist | | | |
| Travis Cnty TX Hsg Fin Corp Mf Hsg Rev Var Kensington Apts (Mandatory put 08/01/25) | | | |
| TX St Dept of Hsg & Cmnty Affairs Mf Hsg Rev Var Nts Aspen Park (Mandatory put 03/01/26) | | | |
| TX St Turnpike Auth Centrl TX Turnpike Sys Rev Unrefunded 1st Tier, Ser A, AMBAC, CABS | | | |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| United TX Indep Sch Dist Sch Bldg (Pre-refunded maturity 08/15/24) | | | |
| Ysleta TX Indep Sch Dist Ref (Pre-refunded maturity 08/15/24) | | | |
| | |
| | |
| Richmond VA Redev & Hsg Auth Mf Rev Var Townes at River South (Mandatory put 03/01/25) | | | |
| VA Clg Bldg Auth Eductnl Facs Rev Ref Regent Univ Proj | | | |
| | |
| | |
| Grant Cnty WA Pub Util Dist #2 Priest Rapids Hydro Elec R Ref, Ser B, AMT (Pre-refunded maturity 07/01/24) | | | |
| Seattle WA Wtr Sys Rev Sustainable Bond Ref | | | |
| WA St Hlth Care Facs Auth Ref Commonspirit Hlth, Ser B1 (Mandatory put 08/01/24) | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Ref Emerald Heights Proj, Ser A | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Ref Emerald Heights Proj, Ser A | | | |
| | |
| | |
| Milwaukee WI Ref Prom Nts, Ser N2 | | | |
| Milwaukee WI Ref Promissory Nts, Ser N4 | | | |
| | |
|
|
| Total Investments — 98.8% | |
| | |
| Net Other Assets and Liabilities — 1.2% | |
| | |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At January 31, 2024, securities noted as such amounted to $9,908,328 or 4.6% of net assets. |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| |
Abbreviations throughout the Portfolio of Investments: |
| – Assured Guaranty Municipal Corp. |
| – American Municipal Bond Assurance Corp. |
| – Alternative Minimum Tax |
| |
| – Bond Anticipation Notes |
| – Capital Appreciation Bonds |
| – Certificates of Participation |
| – Grant Anticipation Revenue Vehicle |
| |
See Notes to Financial Statements
First Trust Ultra Short Duration Municipal ETF (FUMB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited)
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Assets and Liabilities
January 31, 2024 (Unaudited)
| First Trust Short Duration Managed Municipal ETF
(FSMB) | First Trust Ultra Short Duration Municipal ETF
(FUMB) |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
Accumulated distributable earnings (loss) | | |
| | |
NET ASSET VALUE, per share | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | |
| | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Operations
For the Six Months Ended January 31, 2024 (Unaudited)
| First Trust Short Duration Managed Municipal ETF
(FSMB) | First Trust Ultra Short Duration Municipal ETF
(FUMB) |
| | |
| | |
| | |
|
| | |
| | |
| | |
NET INVESTMENT INCOME (LOSS) | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | |
Net realized gain (loss) on investments | | |
Net change in unrealized appreciation (depreciation) on investments | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Changes in Net Assets
| First Trust Short Duration Managed Municipal ETF (FSMB) | First Trust Ultra Short Duration Municipal ETF (FUMB) |
| Six Months
Ended
1/31/2024 (Unaudited) | | Six Months
Ended
1/31/2024 (Unaudited) | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
| | | | |
Total distributions to shareholders | | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights
For a share outstanding throughout each period First Trust Short Duration Managed Municipal ETF (FSMB)
| Six Months
Ended
1/31/2024
(Unaudited) | | Period
Ended
7/31/2019 (a) |
| | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (e) | | | | | | |
| Inception date is November 1, 2018, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust Ultra Short Duration Municipal ETF (FUMB)
| Six Months
Ended
1/31/2024
(Unaudited) | | Period
Ended
7/31/2019 (a) |
| | | | |
Net asset value, beginning of period | | | | | | |
Income from investment operations: | | | | | | |
Net investment income (loss) | | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total from investment operations | | | | | | |
Distributions paid to shareholders from: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net asset value, end of period | | | | | | |
| | | | | | |
|
Ratios to average net assets/supplemental data: | | | | | | |
Net assets, end of period (in 000’s) | | | | | | |
Ratio of total expenses to average net assets | | | | | | |
Ratio of net expenses to average net assets | | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | | |
Portfolio turnover rate (f) | | | | | | |
| Inception date is November 1, 2018, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| Amount represents less than $0.01. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) 1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of seventeen funds that are offering shares. This report covers the two funds (each a “Fund” and collectively, the “Funds”) listed below, each a diversified series of the Trust and listed and traded on NYSE Arca, Inc.
First Trust Short Duration Managed Municipal ETF – (ticker “FSMB”) |
First Trust Ultra Short Duration Municipal ETF – (ticker “FUMB”) |
Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
Each Fund is an actively managed exchange-traded fund. The investment objective of each Fund is to seek to provide federally tax-exempt income consistent with capital preservation. Under normal market conditions, each Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes.
There can be no assurance that a Fund will achieve its investment objective. The Funds may not be appropriate for all investors.
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Municipal securities and other debt securities are fair valued on the basis of fair valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots.
Exchange-traded futures contracts are valued at the end of the day settlement price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of the security;
6)
the financial statements of the issuer;
7)
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security; and
12)
other relevant factors.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) • Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of January 31, 2024, is included with each Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. Each Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At January 31, 2024, the Funds had no when-issued, delayed-delivery or forward purchase commitments.
C. Futures Contracts
FSMB may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statements of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statements of Operations. This daily fluctuation in the value of the contract is also known as variation margin and is included in “Variation margin” payable or receivable on the Statements of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments. The Fund did not hold any futures contracts at January 31, 2024.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended July 31, 2023 was as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Tax-Exempt
Income | Distributions
paid from
Return of
Capital |
First Trust Short Duration Managed Municipal ETF | | | | |
First Trust Ultra Short Duration Municipal ETF | | | | |
As of July 31, 2023, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust Short Duration Managed Municipal ETF | | | |
First Trust Ultra Short Duration Municipal ETF | | | |
E. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
In addition, each Fund intends to invest in municipal securities to allow it to pay shareholders “exempt dividends” as defined in the Code.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2020, 2021, 2022, and 2023 remain open to federal and state audit. As of January 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2023, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust Short Duration Managed Municipal ETF | |
First Trust Ultra Short Duration Municipal ETF | |
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended July 31, 2023, the Funds had no net late year ordinary or capital losses.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) As of January 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust Short Duration Managed Municipal ETF | | | | |
First Trust Ultra Short Duration Municipal ETF | | | | |
F. Expenses
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of each Fund’s assets and is responsible for the expenses of each Fund, including the cost of transfer agency, custody, fund administration, legal, audit, and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, which are paid by each respective Fund. Prior to October 16, 2023, First Trust also provided fund reporting services to the Funds for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedules:
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Fund net assets up to and including $2.5 billion | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | |
Fund net assets greater than $10 billion | | |
Effective October 16, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to October 16, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BBH was responsible for custody of each Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for each Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended January 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
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First Trust Short Duration Managed Municipal ETF | | |
First Trust Ultra Short Duration Municipal ETF | | |
For the six months ended January 31, 2024, the Funds had no in-kind transactions.
5. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2024.
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on each Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
Each Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. Each Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for each Fund is available to investors within 60 days after the period to which it relates. Each Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Exchange-Traded Fund IIIJanuary 31, 2024 (Unaudited) payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
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For the Six Months Ended
January 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Merger Arbitrage ETF (MARB) |
First Trust Merger Arbitrage ETF (MARB)
Semi-Annual Report
January 31, 2024
Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (“First Trust” or the “Advisor”) and/or First Trust Capital Management L.P. (“First Trust Capital Management” or the “Sub-Advisor”) and their respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as “anticipate,” “estimate,” “intend,” “expect,” “believe,” “plan,” “may,” “should,” “would” or other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (First Trust Merger Arbitrage ETF; hereinafter referred to as the “Fund”) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisor and their respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund. See “Risk Considerations” in the Additional Information section of this report for a discussion of certain other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
How to Read This Report
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data and analysis that provide insight into the Fund’s performance and investment approach.
The statistical information that follows may help you understand the Fund’s performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor and/or Sub-Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Merger Arbitrage ETF (MARB)
Semi-Annual Letter from the Chairman and CEO
January 31, 2024
Dear Shareholders,
First Trust is pleased to provide you with the semi-annual report for the First Trust Merger Arbitrage ETF (the “Fund”), which contains detailed information about the Fund for the six-month period ended January 31, 2024.
While there were many noteworthy financial and economic developments over the past six months, perhaps chief among them was the December 2023 statement from the Federal Reserve (the “Fed”). After voting on December 13 to keep the Federal Funds target rate unchanged, the Fed revealed that it was planning up to three interest rate cuts totaling 75 basis points in 2024. The timing of the Fed’s statement came as a surprise to many, especially given its September 2023 announcement that its policy rate was likely to remain “higher for longer” due to stubbornly high inflation.
With December’s announcement effectively taking further interest rate hikes off the table, the discussion now focuses on the timing of the Fed’s cuts. As expected, there are numerous opinions. At the end of December 2023, the futures market for the Federal Funds target rate indicated an 84.3% chance that the Fed would cut its policy rate at its March 2024 meeting. Since then, better than expected economic data and a re-acceleration in the rate of inflation have changed the calculus substantially. As of January 31, 2024, the same futures market indicated a 34.9% chance of the first interest rate cut occurring in March, representing a decline of 49.4 percentage points from where it stood last month.
Falling interest rates could be a boon to an already exuberant U.S. consumer. Consumer sentiment is surging, and shoppers are spending in droves. The University of Michigan’s “Survey of Consumers” revealed that the metric rose by 21.7% on a year-over-year basis in January 2024, reaching its highest level since July 2021. Adobe Analytics reported that a record $222.1 billion was spent online over the 2023 holiday shopping season (which runs from November 1 through December 31), up from $211.7 billion over the same period in 2022. In addition, real discretionary consumer spending rose to $10.9 trillion in 2023, an increase of $1.2 trillion from the $9.7 trillion in real discretionary spending in 2019 (pre-COVID-19). That said, there is data that suggests all this spending may not be sustainable. The Federal Reserve Bank of New York reported that aggregate household debt rose to a record $17.5 trillion at the end of 2023, while the share of credit card balances that moved into serious delinquency (90 days or more past due) rose to 6.3% in the fourth quarter of the year. The last time this share of credit card balances were seriously delinquent was in the second quarter of 2011.
Keep in mind that higher interest rates have been very good for some investors. Take the large portion of cash in money market funds, CDs, and even investments in the broader fixed income markets, as an example. Higher interest rates and recent disinflation have created an environment where, for the first time in many years, these assets are earning a positive real return. By the Fed’s own admission, interest rates are not likely to remain at these levels for long. For the time being, however, investors with capital on hand are being rewarded.
Thank you for giving First Trust the opportunity to play a role in your financial future. We value our relationship with you and will report on the Fund again in six months.
Sincerely,
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Fund Performance Overview (Unaudited)
First Trust Merger Arbitrage ETF (MARB)
The First Trust Merger Arbitrage ETF’s (the “Fund”) investment objective is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The Fund’s portfolio may include equity securities issued by U.S. and non-U.S. companies, including American Depositary Receipts, and derivatives, including total return swaps. The Fund may invest in securities issued by small, mid and large capitalization issuers. The Fund lists and principally trades its shares on NYSE Arca, Inc. under the ticker symbol “MARB.”
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| | | Average Annual Total Returns | |
| | | Inception
(2/4/20)
to 1/31/24 | Inception
(2/4/20)
to 1/31/24 |
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Credit Suisse Merger Arbitrage Liquid Index(1) | | | | |
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| Effective as of August 1, 2023, the Credit Suisse Merger Arbitrage Liquid Index replaced the Hedge Fund Research Merger Arbitrage Index, which is no longer available for use by the Fund. |
Total returns for the period since inception are calculated from the inception date of the Fund. “Average Annual Total Returns” represent the average annual change in value of an investment over the period indicated. “Cumulative Total Returns” represent the total change in value of an investment over the period indicated.
The Fund’s per share net asset value (“NAV”) is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint of the national best bid and offer price (“NBBO”) as of the time that the Fund’s NAV is calculated. Under Securities and Exchange Commission rules, the NBBO consists of the highest displayed buy and lowest sell prices among the various exchanges trading the Fund at the time the Fund’s NAV is calculated. Since shares of the Fund did not trade in the secondary market until after its inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund’s past performance is no guarantee of future performance.
Fund Performance Overview (Unaudited) (Continued)
First Trust Merger Arbitrage ETF (MARB) (Continued)
Portfolio Sector Allocation | % of Total
Investments -
Long Positions |
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Portfolio Sector Allocation | % of Total
Investments
Sold Short |
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Top Ten Investments - Long Positions | |
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Albertsons Cos., Inc., Class A | |
Pioneer Natural Resources Co. | |
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United States Steel Corp. | |
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Textainer Group Holdings Ltd. | |
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Top Investments Sold Short | |
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Provident Financial Services, Inc. | |
| |
| Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance. |
Frequency Distribution of Discounts and Premiums
Information showing the number of days the market price of the Fund’s shares was greater (at a premium) and less (at a discount) than the Fund’s net asset value for the most recently completed year, and the most recently completed calendar quarters since that year (or life of the Fund, if shorter) is available at https://www.ftportfolios.com/Retail/etf/home.aspx.
First Trust Merger Arbitrage ETF (MARB)Semi-Annual ReportJanuary 31, 2024 (Unaudited) Advisor
First Trust Advisors L.P. (“First Trust”) serves as the investment advisor to the First Trust Merger Arbitrage ETF (the “Fund” or “MARB”). First Trust is responsible for the ongoing monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Sub-Advisor
First Trust Capital Management L.P.
First Trust Capital Management L.P. (“First Trust Capital Management” or the “Sub-Advisor”) serves as the Fund’s investment sub-advisor. First Trust Capital Management is an SEC registered investment advisor, founded in 2013 and headquartered in Chicago, Illinois, that specializes in structuring and managing alternative investment, multi-manager, and multi-strategy mutual funds. First Trust Capital Management prides itself on its ability to combine rigorous research and risk management processes with disciplined portfolio construction and management.
Portfolio Management Team
The following persons serve as the portfolio managers of the Fund:
Michael Peck, CFA – Chief Executive Officer and Co-Chief Investment Officer
Brian Murphy – Co-Chief Investment Officer and Portfolio Manager
Michael Grayson – Portfolio Manager
The portfolio managers are primarily and jointly responsible for the day-to-day management of the Fund. Each portfolio manager has served in such capacity for the Fund since 2020.
First Trust Merger Arbitrage ETF (MARB)Understanding Your Fund ExpensesJanuary 31, 2024 (Unaudited) As a shareholder of First Trust Merger Arbitrage ETF (the “Fund”), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, if any, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended January 31, 2024.
Actual Expenses
The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning
Account Value
August 1, 2023 | Ending
Account Value
January 31, 2024 | Annualized
Expense Ratio
Based on the
Six-Month
Period | Expenses Paid
During the
Six-Month
Period (a) |
First Trust Merger Arbitrage ETF (MARB) |
| | | | |
Hypothetical (5% return before expenses) | | | | |
| Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (August 1, 2023 through January 31, 2024), multiplied by 184/366 (to reflect the six-month period). |
First Trust Merger Arbitrage ETF (MARB)Portfolio of InvestmentsJanuary 31, 2024 (Unaudited)
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| Ambrx Biopharma, Inc. (a) | |
| Cerevel Therapeutics Holdings, Inc. (a) | |
| Harpoon Therapeutics, Inc. (a) | |
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| Karuna Therapeutics, Inc. (a) | |
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| Consumer Staples Distribution | |
| Albertsons Cos., Inc., Class A (b) | |
| Diversified Consumer Services | |
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| Sovos Brands, Inc. (a) (b) | |
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| National Western Life Group, Inc., Class A | |
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| United States Steel Corp. | |
| Oil, Gas & Consumable Fuels | |
| Pioneer Natural Resources Co. | |
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| Alteryx, Inc., Class A (a) | |
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| Textiles, Apparel & Luxury | |
| Capri Holdings Ltd. (a) (b) | |
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|
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| Textainer Group Holdings Ltd. | |
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|
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| Chinook Therapeutics, Inc., expiring December 21, 2029 (a) (c) (d) (e) | |
| Mirati Therapeutics, Inc., expiring October 8, 2024 (a) (c) (d) (e) | |
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| ABIOMED, Inc., expiring December 31, 2029 (a) (c) (d) (e) | |
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MONEY MARKET FUNDS — 23.9% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 5.22% (f) | |
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| Total Investments — 93.2% | |
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COMMON STOCKS SOLD SHORT — (7.6)% |
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| Provident Financial Services, Inc. | |
| Oil, Gas & Consumable Fuels | |
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| Total Investments Sold Short — (7.6)% | |
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| Net Other Assets and Liabilities — 14.4% | |
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| Non-income producing security. |
| This security or a portion of this security is segregated as collateral for investments sold short. At January 31, 2024, the segregated value of these securities amounts to $5,153,900. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P., the Fund’s advisor. |
See Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)Portfolio of Investments (Continued)January 31, 2024 (Unaudited) | This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At January 31, 2024, securities noted as such are valued at $0 or 0.0% of net assets. |
| This security’s value was determined using significant unobservable inputs (see Note 2A - Portfolio Valuation in the Notes to Financial Statements). |
| Rate shown reflects yield as of January 31, 2024. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of January 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
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| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| See Portfolio of Investments for industry breakout. |
| Investments are valued at $0. |
Level 3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level 3 values are based on unobservable inputs.
See Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)Statement of Assets and Liabilities
January 31, 2024 (Unaudited)
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Investment securities sold | |
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Investments sold short, at value | |
Investment advisory fees payable | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
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Investments sold short, proceeds | |
See Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)Statement of Operations
For the Six Months Ended January 31, 2024 (Unaudited)
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Dividend expense on investments sold short | |
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Net change in unrealized appreciation (depreciation) on: | |
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Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)Statements of Changes in Net Assets
| Six Months
Ended
1/31/2024 (Unaudited) | |
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
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|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)Financial Highlights
For a share outstanding throughout each period
| Six Months
Ended
1/31/2024
(Unaudited) | | Period
Ended
7/31/2020 (a) |
| | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of total expenses to average net assets excluding dividend expense and margin interest expense | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (f) | | | | | |
| Inception date is February 4, 2020, which is consistent with the commencement of investment operations and is the date the initial creation units were established. |
| Based on average shares outstanding. |
| The per share amount does not correlate with the aggregate realized and unrealized gain (loss) due to the timing of the Fund share sales and repurchases in relation to market value fluctuation of the underlying investments. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) 1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
The Trust currently consists of seventeen funds that are offering shares. This report covers the First Trust Merger Arbitrage ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “MARB” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek to provide investors with capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objective by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition. The Fund’s portfolio may include equity securities issued by U.S. and non-U.S. companies, including American Depositary Receipts, and derivatives, including total return swaps. The Fund may invest in securities issued by small, mid and large capitalization issuers.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Common stocks and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Shares of open-end funds are valued based on NAV per share.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is
Notes to Financial Statements (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party pricing service, does not reflect the security’s fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of January 31, 2024, is included with the Fund’s Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded daily on the accrual basis.
Distributions received from the Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. The Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by the Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
Notes to Financial Statements (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) C. Short Sales
Short sales are utilized for investment and risk management purposes and are transactions in which securities or other instruments (such as options, forwards, futures or other derivative contracts) are sold by the Fund, but are not currently owned in the Fund’s portfolio. When the Fund engages in a short sale, the Fund must borrow the security sold short and deliver the security to the counterparty. Short selling allows the Fund to profit from a decline in a market price to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The Fund will pay a fee or premium to borrow the securities sold short and is obligated to repay the lenders of the securities. Any dividends or interest that accrues on the securities during the period of the loan are due to the lenders. A gain, limited to the price at which the security was sold short, or a loss, unlimited in size, will be recognized upon the termination of the short sale; which is affected by the Fund purchasing the security sold short and delivering the security to the lender. Any such gain or loss may be offset, completely or in part, by the change in the value of the long portion of the Fund’s portfolio. The Fund is subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in excess of the last quoted price. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to the Fund.
The Fund has established an account with BNP Paribas Prime Brokerage International, Ltd. for the purpose of borrowing securities that the Fund intends to sell short. The Fund is charged interest on debit margin balances at a rate equal to the Overnight Bank Funding Rate plus 85 basis points. With regard to securities held short, the Fund is credited a rebate equal to the market value of its short positions at a rate equal to the Overnight Bank Funding Rate less 35 basis points. This rebate rate applies to easy to borrow securities. Securities that are hard to borrow may earn a rebate that is less than the foregoing or may be subject to a premium charge on a security by security basis. The different rebate rate is determined at the time of a short sale request. For the six months ended January 31, 2024, the Fund had margin interest rebate of $140,363 as shown on the Statement of Operations. Restricted cash in the amount of $4,194,506, as shown on the Statement of Assets and Liabilities, is associated with collateral at the broker as of January 31, 2024.
D. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal year ended July 31, 2023 was as follows:
As of July 31, 2023, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
E. Income Taxes
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Notes to Financial Statements (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable period ended 2020 and taxable years ended 2021, 2022, and 2023 remain open to federal and state audit. As of January 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At July 31, 2023, for federal income tax purposes, the Fund had no capital loss carryforwards available to offset future capital gains.
During the fiscal year ended July 31, 2023, the Fund utilized $49,480 of capital loss carryforwards.
As of January 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
F. Expenses
Expenses, other than the investment advisory fee, dividend and interest expenses on investments sold short and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for supervising the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to an investment management agreement between First Trust and the Trust, on behalf of the Fund (the “Investment Management Agreement”), First Trust oversees First Trust Capital Management L.P.’s (“First Trust Capital Management” or the “Sub-Advisor”) management of the Fund’s assets. First Trust Capital Management receives a sub-advisory fee equal to 0.625% of the average daily net assets of the Fund less the amount of Fund Expenses owed by the Sub-Advisor. During any period in which the Advisor’s management fee is reduced in accordance with the breakpoints described below, the investment sub-advisory fee will be reduced to reflect the reduction in First Trust’s management fee. First Trust is responsible for the expenses of the Fund including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, if any, brokerage commissions and other expenses connected with the execution of portfolio transactions, expenses associated with short sales transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. Prior to October 16, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Notes to Financial Statements (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) First Trust Capital Partners, LLC, an affiliate of First Trust, owns a 49.5% ownership interest in First Trust Capital Management through First Trust Capital Solutions L.P.
Effective October 16, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNYM”). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNYM is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to October 16, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Lead Independent Trustee and the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairs rotate every three years. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the six months ended January 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments, investments sold short, and in-kind transactions, were $63,294,733 and $69,986,345, respectively. The cost of purchases to cover short sales and the proceeds of short sales were $11,486,611 and $7,650,981, respectively.
For the six months ended January 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $1,422,182 and $7,526,891, respectively. The cost of in-kind purchases to cover short sales and the proceeds from in-kind sales were $0 and $0, respectively.
5. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund times the number of
Notes to Financial Statements (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) shares in a Creation Unit, plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before November 30, 2024.
7. Indemnification
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund’s website at www.ftportfolios.com; and (3) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Portfolio Holdings
The Fund files portfolio holdings information for each month in a fiscal quarter within 60 days after the end of the relevant fiscal quarter on Form N-PORT. Portfolio holdings information for the third month of each fiscal quarter will be publicly available on the SEC’s website at www.sec.gov. The Fund’s complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year is included in the semi-annual and annual reports to shareholders, respectively, and is filed with the SEC on Form N-CSR. The semi-annual and annual report for the Fund is available to investors within 60 days after the period to which it relates. The Fund’s Forms N-PORT and Forms N-CSR are available on the SEC’s website listed above.
Risk Considerations
Risks are inherent in all investing. Certain general risks that may be applicable to a Fund are identified below, but not all of the material risks relevant to each Fund are included in this report and not all of the risks below apply to each Fund. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information and other regulatory filings. Before investing, you should consider each Fund’s investment objective, risks, charges and expenses, and read each Fund’s prospectus and statement of additional information carefully. You can download each Fund’s prospectus at www.ftportfolios.com or contact First Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains this and other information about each Fund.
Concentration Risk. To the extent that a fund is able to invest a significant percentage of its assets in a single asset class or the securities of issuers within the same country, state, region, industry or sector, an adverse economic, business or political development may affect the value of the fund’s investments more than if the fund were more broadly diversified. A fund that tracks an index will be concentrated to the extent the fund’s corresponding index is concentrated. A concentration makes a fund more susceptible to any single occurrence and may subject the fund to greater market risk than a fund that is more broadly diversified.
Credit Risk. Credit risk is the risk that an issuer of a security will be unable or unwilling to make dividend, interest and/or principal payments when due and the related risk that the value of a security may decline because of concerns about the issuer’s ability to make such payments.
Cyber Security Risk. The funds are susceptible to potential operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause a fund to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause a fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cyber security breaches of a fund’s third-party service providers, such as its administrator, transfer agent, custodian, or sub-advisor, as applicable, or issuers in which the fund invests, can also subject a fund to many of the same risks associated with direct cyber security breaches.
Defined Outcome Funds Risk. To the extent a fund’s investment strategy is designed to deliver returns tied to the price performance of an underlying ETF, an investor may not realize the returns the fund seeks to achieve if that investor does not hold shares for the entire target outcome period. In the event an investor purchases shares after the first day of the target outcome period or sells shares prior to the end of the target outcome period, the buffer that the fund seeks to provide against a decline in the value of the underlying ETF may not be available, the enhanced returns that the fund seeks to provide (if any) may not be available and the investor may not participate in a gain in the value of the underlying ETF up to the cap for the investor’s investment period. Additionally, the fund will not participate in gains of the underlying ETF above the cap and a shareholder may lose their entire investment. If the fund seeks enhanced returns, there are certain time periods when the value of the fund may fall faster than the value of the underlying ETF, and it is very unlikely that, on any given day during which the underlying ETF share price increases in value, the fund’s share price will increase at the same rate as the enhanced returns sought by the fund, which is designed for an entire target outcome period. Trading flexible exchange options involves risks different from, or possibly greater than, the risks associated with investing directly in securities, such as less liquidity and correlation and valuation risks. A fund may experience substantial downside from specific flexible exchange option positions and certain positions may expire worthless.
Additional Information (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) Derivatives Risk. To the extent a fund uses derivative instruments such as futures contracts, options contracts and swaps, the fund may experience losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivative. These risks are heightened when a fund’s portfolio managers use derivatives to enhance the fund’s return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the fund.
Equity Securities Risk. To the extent a fund invests in equity securities, the value of the fund’s shares will fluctuate with changes in the value of the equity securities. Equity securities prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. Equity securities may decline significantly in price over short or extended periods of time, and such declines may occur in the equity market as a whole, or they may occur in only a particular country, company, industry or sector of the market.
ETF Risk. The shares of an ETF trade like common stock and represent an interest in a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs. Shares of an ETF trade on an exchange at market prices rather than net asset value, which may cause the shares to trade at a price greater than net asset value (premium) or less than net asset value (discount). In times of market stress, decisions by market makers to reduce or step away from their role of providing a market for an ETF’s shares, or decisions by an ETF’s authorized participants that they are unable or unwilling to proceed with creation and/or redemption orders of an ETF’s shares, could result in shares of the ETF trading at a discount to net asset value and in greater than normal intraday bid-ask spreads.
Fixed Income Securities Risk. To the extent a fund invests in fixed income securities, the fund will be subject to credit risk, income risk, interest rate risk, liquidity risk and prepayment risk. Income risk is the risk that income from a fund’s fixed income investments could decline during periods of falling interest rates. Interest rate risk is the risk that the value of a fund’s fixed income securities will decline because of rising interest rates. Liquidity risk is the risk that a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. Prepayment risk is the risk that the securities will be redeemed or prepaid by the issuer, resulting in lower interest payments received by the fund. In addition to these risks, high yield securities, or “junk” bonds, are subject to greater market fluctuations and risk of loss than securities with higher ratings, and the market for high yield securities is generally smaller and less liquid than that for investment grade securities.
Index or Model Constituent Risk. Certain funds may be a constituent of one or more indices or ETF models. As a result, such a fund may be included in one or more index-tracking exchange-traded funds or mutual funds. Being a component security of such a vehicle could greatly affect the trading activity involving a fund, the size of the fund and the market volatility of the fund. Inclusion in an index could increase demand for the fund and removal from an index could result in outsized selling activity in a relatively short period of time. As a result, a fund’s net asset value could be negatively impacted and the fund’s market price may be significantly below its net asset value during certain periods. In addition, index rebalances may potentially result in increased trading activity in a fund’s shares.
Index Provider Risk. To the extent a fund seeks to track an index, it is subject to Index Provider Risk. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, maintained, constructed, reconstituted, rebalanced, composed, calculated or disseminated accurately. To correct any such error, the Index Provider may carry out an unscheduled rebalance or other modification of the Index constituents or weightings, which may increase the fund’s costs. The Index Provider does not provide any representation or warranty in relation to the quality, accuracy or completeness of data in the Index, and it does not guarantee that the Index will be calculated in accordance with its stated methodology. Losses or costs associated with any Index Provider errors generally will be borne by the fund and its shareholders.
Investment Companies Risk. To the extent a fund invests in the securities of other investment vehicles, the fund will incur additional fees and expenses that would not be present in a direct investment in those investment vehicles. Furthermore, the fund’s investment performance and risks are directly related to the investment performance and risks of the investment vehicles in which the fund invests.
LIBOR Risk. To the extent a fund invests in floating or variable rate obligations that use the London Interbank Offered Rate (“LIBOR”) as a reference interest rate, it is subject to LIBOR Risk. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has ceased making LIBOR available as a reference rate over a phase-out period that began December 31, 2021.
Additional Information (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) There is no assurance that any alternative reference rate, including the Secured Overnight Financing Rate (“SOFR”) will be similar to or produce the same value or economic equivalence as LIBOR or that instruments using an alternative rate will have the same volume or liquidity. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain fund investments and may result in costs incurred in connection with closing out positions and entering into new trades. Any potential effects of the transition away from LIBOR on the fund or on certain instruments in which the fund invests can be difficult to ascertain, and they may vary depending on a variety of factors, and they could result in losses to the fund.
Management Risk. To the extent that a fund is actively managed, it is subject to management risk. In managing an actively-managed fund’s investment portfolio, the fund’s portfolio managers will apply investment techniques and risk analyses that may not have the desired result. There can be no guarantee that a fund will meet its investment objective.
Market Risk. Market risk is the risk that a particular security, or shares of a fund in general, may fall in value. Securities held by a fund, as well as shares of a fund itself, are subject to market fluctuations caused by factors such as general economic conditions, political events, regulatory or market developments, changes in interest rates and perceived trends in securities prices. Shares of a fund could decline in value or underperform other investments as a result of the risk of loss associated with these market fluctuations. In addition, local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on a fund and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain fund investments as well as fund performance. The COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease. These events also adversely affect the prices and liquidity of a fund’s portfolio securities or other instruments and could result in disruptions in the trading markets. Any of such circumstances could have a materially negative impact on the value of a fund’s shares and result in increased market volatility. During any such events, a fund’s shares may trade at increased premiums or discounts to their net asset value and the bid/ask spread on a fund’s shares may widen.
Non-U.S. Securities Risk. To the extent a fund invests in non-U.S. securities, it is subject to additional risks not associated with securities of domestic issuers. Non-U.S. securities are subject to higher volatility than securities of domestic issuers due to: possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; capital controls; lack of liquidity; currency exchange rates; excessive taxation; government seizure of assets; the imposition of sanctions by foreign governments; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. Investments in non-U.S. securities may involve higher costs than investments in U.S. securities, including higher transaction and custody costs, as well as additional taxes imposed by non-U.S. governments. These risks may be heightened for securities of companies located, or with significant operations, in emerging market countries.
Operational Risk. Each fund is subject to risks arising from various operational factors, including, but not limited to, human error, processing and communication errors, errors of a fund’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each fund relies on third-parties for a range of services, including custody. Any delay or failure relating to engaging or maintaining such service providers may affect a fund’s ability to meet its investment objective. Although the funds and the funds’ investment advisor seek to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
Passive Investment Risk. To the extent a fund seeks to track an index, the fund will invest in the securities included in, or representative of, the index regardless of their investment merit. A fund generally will not attempt to take defensive positions in declining markets.
Preferred Securities Risk. Preferred securities combine some of the characteristics of both common stocks and bonds. Preferred securities are typically subordinated to bonds and other debt securities in a company’s capital structure in terms of priority to corporate income, subjecting them to greater credit risk than those debt securities. Generally, holders of preferred securities have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may obtain limited rights. In certain circumstances, an issuer of preferred securities may defer
Additional Information (Continued)
First Trust Merger Arbitrage ETF (MARB)January 31, 2024 (Unaudited) payment on the securities and, in some cases, redeem the securities prior to a specified date. Preferred securities may also be substantially less liquid than other securities, including common stock.
Valuation Risk. The valuation of certain securities may carry more risk than that of common stock. Uncertainties in the conditions of the financial markets, unreliable reference data, lack of transparency and inconsistency of valuation models and processes may lead to inaccurate asset pricing. A fund may hold investments in sizes smaller than institutionally sized round lot positions (sometimes referred to as odd lots). However, third-party pricing services generally provide evaluations on the basis of institutionally-sized round lots. If a fund sells certain of its investments in an odd lot transaction, the sale price may be less than the value at which such securities have been held by the fund. Odd lots often trade at lower prices than institutional round lots. There is no assurance that the fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the fund.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
First Trust Exchange-Traded Fund III
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISOR
First Trust Capital Management L.P.
225 West Wacker Drive, Suite 2100
Chicago, IL 60606
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 South Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
320 South Canal Street
Chicago, IL 60606
(b) Not applicable.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
| (a) | Schedules of Investments in securities of unaffiliated issuers as of the close of the reporting period are included as part of the report to shareholders filed under Item 1 of this form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)). |
| (b) | There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Item [18.]. Recovery of Erroneously Awarded Compensation.
Not applicable.
Item 14. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (registrant) | | First Trust Exchange-Traded Fund III |
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
| By (Signature and Title)* | | /s/ Derek D. Maltbie |
| | | Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer) |
* Print the name and title of each signing officer under his or her signature.
