Diversified Equity Strategic Allocation Portfolio, 2nd Quarter 2017 Series
The Diversified Equity Strategic Allocation Portfolio is a unit investment
trust that has been developed to provide investors with asset allocation, diversification,
and an annual rebalancing opportunity through a single investment.
Weighing your risk tolerance as well as the investment return you want is very important. Discussing these factors, among others, with a
financial advisor can help you select one of the Strategic Allocation Portfolios that best suits your needs.
The Importance of Asset Allocation
Perhaps the most important investment decision is not the specific investments that are selected, but it's the manner in which the assets are allocated. Asset allocation is the process of developing a diversified investment portfolio by combining different assets in varying proportions. Spreading capital across a range of investments within each major asset class makes your portfolio less dependent on the performance of any single type of investment. Studies have shown that the number one factor contributing to a portfolio's performance is asset class selection and not security selection.*
Diversification makes your portfolio less dependent on the performance of any single asset class. The adjacent chart illustrates the annual performance of various asset classes in relation to one another over the past 20 years as well as a diversified portfolio consisting of an evenly-weighted combination of the asset classes. As you can see, the performance of any given asset class can have drastic changes from year to year making it nearly impossible, even for the most astute investors, to accurately predict the best combination of asset classes to maximize returns and minimize risk. It is important to keep in mind that diversification does not guarantee a profit or protect against loss.
The Relationship Between Risk and Return of Stocks & Bonds
As risk increases in an investment portfolio so do the return expectations. Investors can manage their risk tolerance through asset allocation and by selecting investments that meet their risk/return expectations. Effective asset allocation requires combining assets with low correlations—that is, those that have performed differently over varying market conditions. Investing in assets with low to negative correlation can reduce the overall volatility and risk within your portfolio and may also help to improve portfolio performance. The adjacent chart illustrates the effects of low correlation on the risk and return of varying combinations of stocks and bonds.
Return is measured by average annual total return and risk is measured by standard deviation for the 30 year period from 1987 to 2016. Standard deviation is a measure of price variability. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
||Average Annual Total Returns*
||S&P 1500 Index
||S&P 1500 Index
|Annual Total Returns
||S&P 1500 Index
Past performance is no guarantee of future results and the actual current
performance of the portfolio may be lower or higher than the hypothetical performance
of the strategy. Hypothetical returns for the strategy in certain years were
significantly higher than the returns of the S&P 1500. Hypothetical
strategy returns were the result of certain market factors and events which
may not be replicated in the future. You can obtain performance information
which is current through the most recent month-end by calling First Trust Portfolios
L.P. at 1-800-621-1675 option 2. Investment return and principal value of the
portfolio will fluctuate causing units of the portfolio, when redeemed, to be
worth more or less than their original cost.
Simulated strategy returns are hypothetical, meaning that they do not represent actual trading, and, thus, may not reflect material economic and market factors, such as liquidity constraints, that may have had an impact on actual decision making. The hypothetical performance is the retroactive application of the strategy designed with the full benefit of hindsight. Strategy returns reflect a sales charge of 2.95% in the first year, 1.95% in subsequent years, estimated annual operating expenses of 0.187%, plus organization costs, but not taxes or commissions paid by the portfolio to purchase securities. Strategy returns assume that dividends are reinvested semi-annually while index returns assume dividends are reinvested monthly. Actual portfolio performance will vary from that of investing in the strategy stocks because it may not be invested equally in these stocks and may not be fully invested at all times. It is important to note that the strategy may underperform the S&P 1500 Index in certain years and may produce negative results.
The S&P 1500 Index is an unmanaged index of 1500 stocks representing the large
cap, mid cap and small cap segments of the U.S. equity market.The index cannot
be purchased directly by investors.
Standard Deviation is a measure of price variability (risk). A higher degree of variability indicates more volatility and therefore greater risk.
You should consider the portfolio's investment objective, risks, and
charges and expenses carefully before investing. Contact your financial advisor
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
An investment in this unmanaged unit investment trust should be made with an
understanding of the risks involved with owning common stocks, such as an economic
recession and the possible deterioration of either the financial condition of
the issuers of the equity securities or the general condition of the stock market.
You should be aware that the portfolio is concentrated in stocks
in the consumer products sector which involves additional
risks, including limited diversification. The companies engaged
in the consumer products industry are subject to global
competition, changing government regulations and trade
policies, currency fluctuations, and the financial and political
risks inherent in producing products for foreign markets.
An investment in a portfolio containing small-cap and mid-cap companies is subject to additional risks, as the share prices of small-cap companies and certain
mid-cap companies are often more volatile than those of larger companies due to several factors, including limited trading volumes, products, financial resources,
management inexperience and less publicly available information.
An investment in foreign securities should be made with an understanding of the additional risks involved with foreign issuers, such as currency and interest rate fluctuations, nationalization or other adverse political or economic developments, lack of liquidity of certain foreign markets, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.
Certain of the securities in the portfolio are issued by Real Estate Investment Trusts (REITs). Companies involved in the real estate industry are subject to changes in
the real estate market, vacancy rates and competition, volatile interest rates and economic recession.
The value of the securities held by the trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers.
Although this unit investment trust terminates in approximately 15 months,
the strategy is long-term. Investors should consider their ability to pursue
investing in successive portfolios, if available.There may be tax consequences
unless units are purchased in an IRA or other qualified plan.