Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 


 

Limited Duration Fixed Income ETF Portfolio, Series 22

The Limited Duration Fixed-Income ETF Portfolio is a unit investment trust which invests in a broad range of exchange-traded funds (ETFs). The ETFs invest in U.S. and foreign fixed-income securities which have short durations.

Portfolio Objectives

This unit investment trust seeks current monthly income and capital appreciation; however, there is no assurance the objectives will be achieved. It is important to note that an investment can be made in the underlying funds directly rather than through the trust. These direct investments can be made without paying the trust's sales charge, operating expenses and organizational costs.

Why Limited Duration?

We believe that there is potential for interest rates to move higher which makes limited duration fixed-income ETFs attractive because they provide investors with the potential for high current income but with less interest rate sensitivity than longer duration securities. The duration of a bond is a measure of its price sensitivity to interest rate movements based on the weighted average term to maturity of its interest and principal cash flows. Historically these funds have tended to hold up better in rising interest rate environments than those which invest in longer duration bonds. In addition, periods of rising rates often coincide with improving economic data which has been favorable historically for limited duration securities such as high-yield bonds and convertible securities which are more sensitive to economic growth than to interest rates.

Furthermore, securities with floating rates such as senior loans typically generate a higher level of income as short-term interest rates rise, providing a potential offset to traditional fixed-rate bond holdings which typically come under pressure in periods of rising rates.

What is an ETF?

ETFs offer investors the opportunity to buy and sell an entire basket of securities with a single transaction throughout the trading day. ETFs combine the characteristics of a mutual fund with the convenience and trading flexibility of stocks. Below is a list of other ETF features.

  • Diversification – ETFs hold a basket of securities which helps to mitigate single security risk. It is important to note that diversification does not guarantee a profit or protect against loss.
  • Transparency – ETF holdings are available daily so investors know what they own.
  • Tax Efficiency – The ETF structure allows for increased tax efficiency.
  • Fully Invested – Unlike a traditional mutual fund, ETFs do not need to hold cash in order to satisfy investor redemptions which allows them to better adhere to their investment objective.
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.

Risk Considerations:

An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning ETFs and fixed income securities.

ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective, and to manage the fund’s portfolio when the underlying securities are redeemed or sold, during periods of market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. Unlike open-end funds, which trade at prices based on a current determination of the fund’s net asset value, ETFs frequently trade at a discount from their net asset value in the secondary market. Certain ETFs in which the portfolio invests may employ the use of leverage which increases the volatility of such funds.

All of the ETFs included in the portfolio invest in limited duration bonds. Limited duration bonds are subject to interest rate risk, which is the risk that the value of a security will fall if interest rates increase. While limited duration bonds are generally subject to less interest rate sensitivity than longer duration bonds, there can be no assurance that interest rates will not rise during the life of the trust.

Certain of the ETFs invest in preferred stocks. Preferred stocks are equity securities of the issuing company which pay income in the form of dividends. Preferred stocks are typically subordinated to bonds and other debt instruments in a company's capital structure, and therefore will be subject to greater credit risk than those debt instruments.

Certain of the ETFs invest in senior loans. The yield on closed-end funds which invest in senior loans will generally decline in a falling interest rate environment and increase in a rising interest rate environment. Senior loans are generally below investment grade quality (“junk” bonds). An investment in senior loans involves the risk that the borrowers may default on their obligations to pay principal or interest when due.

Certain of the ETFs invest in high-yield securities or “junk” bonds. Investing in high yield securities should be viewed as speculative and you should review your ability to assume the risks associated with investments which utilize such securities. High-yield securities are subject to numerous risks, including higher interest rates, economic recession, deterioration of the junk bond market, possible downgrades and defaults of interest and/or principal. High-yield security prices tend to fluctuate more than higher rated securities and are affected by short term credit developments to a greater degree.

Certain of the ETFs invest in investment grade securities. Investment grade securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the investment grade market or investors' perception thereof, possible downgrades and defaults of interest and/or principal.

Certain of the ETFs invest in securities issued by foreign issuers which are subject to certain risks including currency and interest rate fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers. Risks associated with investing in foreign securities may be more pronounced in emerging markets where the securities markets are substantially smaller, less liquid, less regulated and more volatile than the U.S. and developed foreign markets.

Certain of the ETFs invest in mortgage-backed securities. Rising interest rates tend to extend the duration of mortgage-backed securities, making them more sensitive to changes in interest rates, and may reduce the market value of the securities. In addition, mortgage-backed securities are subject to prepayment risk, the risk that borrowers may pay off their mortgages sooner than expected, particularly when interest rates decline.

Certain of the ETFs invest in floating-rate securities. A floating-rate security is an instrument in which the interest rate payable on the obligation fluctuates on a periodic basis based upon changes in an interest rate benchmark.

This UIT is a buy and hold strategy and investors should consider their ability to hold the trust until maturity. There may be tax consequences unless units are purchased in an IRA or other qualified plan.

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.

It is important to note that an investment can be made in the underlying funds directly rather than through the trust. These direct investments can be made without paying the trust’s sales charge, operating expenses and organizational costs.

For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.

 
Fund Cusip Information
30305V381 (Cash)
30305V399 (Reinvest)
30305V407 (Cash-Fee)
30305V415 (Reinvest-Fee)
Printer Friendly Page Printer Friendly Page
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2017 All rights reserved.