First Trust Short Duration Managed Municipal ETF (FSMB US) – Portfolio Construction Methodology

The investment process guiding the actively managed First Trust Short Duration Managed Municipal ETF focuses on U.S. municipal debt intended to provide federally tax-exempt income while maintaining a short interest-rate profile. The portfolio invests primarily in investment-grade general obligation and revenue bonds with structural protections and broad market liquidity, with selective allocation to below-investment-grade issues when credit work supports incremental spread. Security selection relies on bottom-up fundamental analysis of issuers, pledged revenues, covenants, call structures and use-of-proceeds, integrating event risk and liquidity assessments at the CUSIP level. Portfolio construction targets a short effective duration with laddered and barbell exposures around refunding cycles and call dates; issue sizes, state concentrations and sector weights are bounded to manage idiosyncratic and geographic risk. Cash and high-quality short munis serve as liquidity buffers. Rebalancing and trims reflect relative-value shifts across curves, calls and credit tiers, or when issuer fundamentals or tax law dynamics change.

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