Homebuilders Recovery Portfolio, Series 5
The housing bubble popped in 2008 as banks issued mortgages to many borrowers with questionable credit, which in many cases has led to defaults and foreclosures. Lenders today take a much closer look at borrower's income history and their overall debt situation before approving a mortgage loan.
The Federal Reserve has held interest rates near zero since December 2008, in an effort to make capital more readily available. As of January 2013, the central bank still plans to keep the federal funds rate at record lows at least through mid-2015. The federal funds rate is the central bank's key to stimulate the economy and a low rate is believed to encourage spending by making it cheaper to borrow money. We believe that the current low interest rate environment may provide a stimulus for consumers who have been waiting to purchase a home.
The objective of this unit investment trust is to seek above-average capital appreciation by investing in the common stocks of companies involved in the home building industry; however, there is no assurance the objective will be met. The portfolio terminates approximately five years from the initial date of deposit.
Consider These Factors
- Home prices nationwide, including those of distressed sales, increased on a year-over-year basis by 8.3% in December 2012 compared to December 2011, according to CoreLogic. This change
represents the biggest increase since May 2006 and the tenth consecutive monthly increase in
home prices nationally.
- Builder confidence in the market for newly built, single-family homes was unchanged in
January 2013 and holds at a level of 47. This means that following eight consecutive monthly
gains, the index continues to hold at its highest level since April 2006, according to the National
Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
- For the past five quarters, housing has acted as a net contributor to the economy. Housing has steadily increased its share to 12.8% of economic growth in the third quarter of 2012, according to NAHB.
- We believe that the efforts of the companies in the home building industry to reduce
inventories and apply lessons learned during the last several years will ultimately put them in a
better position to take advantage of any future market recovery. As you can see in the chart
above, the total inventory of new homes is near rock bottom levels.
The S&P Homebuilders Select Industry Index represents the homebuilding sub-industry portion of the S&P Total
Markets Index. Performance is for illustrative purposes only and not indicative of any actual investment. Index
performance excludes the effects of taxes and brokerage commissions or other expenses incurred when
investing. Investors cannot invest directly in an index.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, 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 of consumer product and industrial companies which involves additional risks, including limited diversification. The companies engaged in the construction industry are subject to competition, overcapacity, labor relations, a reduction in consumer spending, changing consumer spending habits, unseasonable weather conditions, and severe fluctuations in the price of basic building materials.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. The companies engaged in the industrials sector are subject to certain risks, including a deterioration in the general state of the economy, intense competition, domestic and international politics, excess capacity and changing spending trends.
An investment in a portfolio containing small-cap companies is subject to additional risks, as the
share prices of small-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 a portfolio containing equity securities of foreign issuers is subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.
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.