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75/25 Strategic Allocation Portfolio, 3rd Quarter 2024 Series

Investors have long recognized the importance of balancing risk and creating diversification by dividing assets among major asset categories such as stocks and bonds. 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 among investments that focus on different areas of the market primarily helps to reduce volatility and also has the potential to enhance your returns.

We believe there are three hallmarks to a successful long-term investment plan—asset allocation, diversification, and rebalancing. The 75/25 Strategic Allocation Portfolio is a unit investment trust that has been developed to address these needs. It invests in a fixed portfolio of common stocks and exchange-traded funds (ETFs) which are selected by applying our disciplined investment process. It provides investors with asset allocation, diversification, and an annual rebalancing opportunity through a single investment.

Consider The Potential Benefits Of Our Investing Process

  • Complete portfolio transparency — Individual portfolio holdings and their weightings are published daily.

  • Low cash positions so more of your money is put to work.

  • "Style pure" portfolio — Each component of the allocation contains securities selected specifically for the stated style and investment objective of its asset class, ensuring that the portfolio is “style pure” on the initial date of deposit.

  • No overlap — When constructing the portfolio we select a unique set of securities for each asset class within the portfolio ensuring that there is no overlap. Avoiding overlap is a common obstacle when building an allocation on one’s own.

  • Diversification, discipline, and a periodic rebalancing opportunity helping to decrease volatility and potentially increase returns.

A Comprehensive Approach to Security Selection

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. We apply a disciplined and comprehensive valuation process to select securities across assets of varying sizes, styles, countries, and sectors, including those that have had relatively lower correlation with one another.

Common Stock Selection Process

Because stock prices are subject to factors that can make them deviate from a company’s true value, we believe evaluating each company based on time-tested fundamental measures is key to achieving a higher rate of long-term success. Our approach to selecting stocks is based on a proprietary rules-based selection process which is consistently applied. This process embodies key elements of our investment philosophy by focusing on financial measures that are least susceptible to accounting distortions and erroneous corporate guidance.

When selecting stocks for the portfolio, we apply a model which analyzes large-cap, mid-cap, small-cap, and international stocks to assess valuations based on multiple risk, value, and growth factors. Our goal is to identify stocks which exhibit the fundamental characteristics that enable them to provide the greatest potential for capital appreciation. This process is unique and represents a critical point of differentiation from indexing and other management styles.

Stock Selection Factors Chart

Stock Selection Process Chart

Fixed Income ETF Selection Processs

For the fixed income portion of the portfolio we include ETFs which invest in a variety of fixed income securities. Incorporating ETFs which invest in a broad range of fixed income securities results in a portfolio with a distinct risk/reward profile. ETFs provide investors with several benefits, including diversification, transparency, and tax efficiency, all of which align with the principles upon which the portfolio is based.

We perform rigorous analysis and employ a disciplined portfolio construction process when selecting ETFs to include in the portfolio. Primarily, we prefer larger funds with higher trading volumes and we look for funds with higher yields, as well as those that have shown a relatively consistent distribution over time. We also consider a fund’s ability to continue its distribution payments in the future.

The next step in our process is to consider current economic events that might affect financial markets generally and/or the ETF market, as well as news relating to a specific ETF, ETF group or category of funds. In evaluating the fixed income ETFs, the credit quality of the underlying securities held by the funds is also reviewed. If funds are substantially similar with regard to their fixed income characteristics, funds with lower expense ratios will be preferred.

We consult with our fixed income research teams and portfolio management teams who understand the unique factors that drive risk adjusted returns within various asset classes to develop the overall strategic allocation of the fixed income portfolio. Based on these factors, we create a broadly diversified fixed income portfolio with an emphasis on higher income funds.

Portfolio Construction Chart

You should consider the portfolio's investment objectives, risks, and charges and expenses carefully before investing. Contact your financial professional 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 these unmanaged unit investment trusts should be made with an understanding of the risks involved with an investment in a portfolio of common stocks and/or exchange-traded funds (ETFs).

Common stocks are subject to certain risks, 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.

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 of the funds 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.

All of the funds 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 funds 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 funds invest in senior loans. The yield on 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 funds invest in covenant-lite loans which contain fewer or no maintenance covenants and may hinder the ETF’s ability to reprice credit risk and mitigate potential loss especially during a downturn in the credit cycle.

Certain of the fundss invest in U.S. Treasury obligations which are subject to numerous risks including higher interest rates, economic recession and deterioration of the bond market or investors’ perceptions thereof.

Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting non-U.S. issuers.

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.

Large capitalization companies may grow at a slower rate than the overall market.

As the use of Internet technology has become more prevalent in the course of business, the trust has become more susceptible to potential operational risks through breaches in cybersecurity.

Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East, have caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, the Middle East and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.

The ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future variants of the disease.

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.

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.

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.

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


CUSIP identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by FactSet Research Systems Inc. and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, ©2024 CUSIP Global Services. "CUSIP" is a registered trademark of the American Bankers Association.

Fund Cusip Information
30336H484 (Cash)
30336H492 (Reinvest)
30336H500 (Cash-Fee)
30336H518 (Reinvest-Fee)
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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, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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