Target Dividend Multi-Strategy Portfolio, 3rd Quarter 2012 Series
Target Dividend Multi-Strategy Portfolio
Finding the right mix of investments is a key factor to successful investing. Because different investments often react differently to economic and market changes, diversifying your investment portfolio primarily helps to reduce volatility and also has the potential to enhance your returns. Target Dvd. Multi-Strat. (Target Dividend Multi-Strategy Portfolio) has been developed to seek to address this purpose.
The Target Dividend Multi-Strategy Portfolio is a unit investment trust which
provides you with the convenience of owning four distinct strategies in one
investment. It invests in a fixed portfolio of stocks which are selected by
applying pre-determined screens and factors and holds the stocks for approximately
15 months. The portfolio offers several important advantages:
- Complete transparency from the stock selection process to portfolio holdings
and individual stock weightings;
- Automated buy decisions helping to eliminate unwanted emotions from the
- No style drift from manager-driven trading;
- Low cash positions so more of your money is put to work;
- Diversification, discipline, and a periodic rebalancing opportunity helping
to decrease volatility and potentially increase returns.
As you can see in the adjacent charts, if this strategy had been applied since
1995, investors would have realized higher total returns than by investing in
the S&P 500 Index. It is important to note that the past performance of the
strategy is hypothetical and it is not indicative of the future performance
of the Target Dividend Multi-Strategy Portfolio.
Keys to Strategy Investing
We expect some strategies to perform better than others under different market
conditions. That's why we believe it is important to diversify among different
strategies. Target Dividend Multi-Strategy consists of four distinct strategies
- each using factors or screens to select dividend-paying stocks. The result
is a portfolio that provides exposure to various sectors, market caps, growth
and value styles and countries.
History has shown that bear and bull markets are a normal occurrence. Although
past performance is no guarantee of future results, history has also shown that
equity investors have been rewarded for their patience over the long-term. The
chart on the adjacent page illustrates this point based on applying the hypothetical
strategy over one year, three year, and five year periods. Of course, there
is no guarantee that the performance of the strategy or the trust will be positive
over any future time period.
Studies have shown that rebalancing can provide benefits to your long-term investment
plan. Rebalancing is simple with Target Dividend Multi-Strategy. When the portfolio
terminates, investors have the option to reinvest their proceeds, at a reduced
sales charge, into a new, rebalanced portfolio. In addition to rebalancing the
individual component strategies back to their original weighting, new stocks
are also selected by reapplying the underlying strategies. It is important to
note that rebalancing may cause a taxable event unless units of the portfolio
are purchased in an IRA or other qualified plan.
Portfolio Selection Process
The Target Dividend Multi-Strategy Portfolio seeks to provide the potential
for above-average total return by adhering to a simple investment strategy;
however, there is no assurance the objective will be met. On the initial date
of deposit, the portfolio is approximately equally weighted among the four strategies
The Dow® Target Dividend Strategy
- Begin with the stocks that comprise the Dow Jones Select Dividend IndexSM.
The index consists of 100 widely-traded, dividend-paying stocks derived from
the Dow Jones U.S. Total Market IndexSM.
- Rank each of the 100 stocks on two factors:
- Change in return on assets over the last 12 months. An increase in return on assets is generally used as an indication of improving business fundamentals and would receive a higher ranking than a stock with a negative change in return on assets.
- Price to book. A lower, but positive, price to book ratio is generally used as an indication of value.
- Purchase an approximately equally-weighted portfolio of the 20 stocks with
the best overall ranking on the two factors.
Global Target 15 Strategy
- Rank the stocks in the DJIASM, Financial Times Industrial Ordinary Share
Index and Hang Seng Index by dividend yield. The Hang Seng Index is an index
of stocks currently listed on the Stock Exchange of Hong Kong. The Financial
Times Industrial Ordinary Share Index is an index of stocks chosen by the
editors of The Financial Times as being representative of the British
industry and commerce.
- Purchase an approximately equally-weighted portfolio of the 5 lowest priced
of the 10 highest dividend-yielding stocks from each index.
Target Diversified Dividend Strategy
- Begin with all stocks traded on a U.S. exchange and screen for the following:
- Minimum market capitalization of $250 million.
- Minimum three month average daily trading volume of $1.5 million.
- Minimum stock price of $5.
- Eliminate REITs, ADRs, registered investment companies and limited partnerships.
- Select only those stocks with positive three year dividend growth.
- Give the remaining stocks a weighted ranking on three factors:
- Indicated dividend yield - 50%
- Price to book - 25%
- Payout ratio - 25%
- Purchase an approximately equally-weighted portfolio consisting of four
stocks from each of the ten major GICS market sectors with the highest combined
ranking on the three factors.
European Target 20 Strategy
- Select the largest 120 companies based on market capitalization which are domiciled in Europe.
- Purchase an approximately equally-weighted portfolio of the 20 highest dividend-yielding
Not FDIC Insured Not Bank Guaranteed May Lose Value
||Average Annual Total Returns*
|Annual Total Returns
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 500 Index. Hypothetical strategy
returns were the result of certain market factors and events which may not be
replicated in the futureYou 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 0.502%, plus organization costs, but not taxes or commissions paid by the portfolio to purchase securities. Returns assume that all dividends received during a year 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 500 Index in certain years and may produce negative results.
The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap
U.S. stock market performance. 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 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 in the financials sector which involves additional risks, including limited diversification. The companies engaged in the financials sector are subject to the adverse effects of volatile interest rates, economic recession, decreases in the availability of capital, increased competition from new entrants in the field, and potential increased regulation.
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
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. 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.
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.
The Dow Jones U.S. Select Dividend IndexSM is a product of Dow Jones
Indexes, a licensed trademark of CME Group Index Services LLC ("CME"), and has
been licensed for use. "Dow Jones®", "Dow Jones U.S. Select Dividend
IndexSM" and "Dow Jones Indexes" are service marks of Dow Jones Trademark
Holdings, LLC ("Dow Jones"), and have been licensed to CME and have been sublicensed
for use for certain purposes by First Trust. The Target Dividend Multi-Strategy
Portfolio, based on the Dow Jones U.S. Select Dividend IndexSM, is
not sponsored, endorsed, sold or promoted by Dow Jones, CME or their respective
affiliates and none of them makes any representation regarding the advisability
of investing in such products.