American Recovery Portfolio, Series 2
The American Recovery Portfolio is a unit investment trust that invests in common stocks across
the following sectors: communication services, consumer discretionary, health care, industrials
and information technology. Our goal with this portfolio is to choose well-capitalized companies
with strong market positions. One important advantage that well-capitalized companies enjoy
over others is that they have the potential to provide their stockholders with a greater degree of
stability and performance over time.
Through our selection process, we seek to find companies with the following qualities:
- Well-capitalized with strong balance sheets;
- Skilled management;
- High liquidity;
- Ability to generate earnings growth; and
- Record of financial strength and profit growth.
Consider The Following
- Communication Services | This sector includes media and entertainment companies. With the spread of COVID-19, the Coronavirus, in the first quarter of 2020, it is anticipated that digital media
consumption will increase as people spend more time at home. Consumption is expected to increase across social media, over-the-top video and online gaming.1
- Consumer Discretionary | This sector has been feeling the impact of the most recent pandemic as people cancel trips and avoid leisure activities. The sector is dominated by companies that
produce products and services that consumers often do without when they are under financial stress or worried about the state of the economy. Prior to the COVID-19 pandemic, the U.S. labor market
was strong with healthy consumer balance sheets which may help this sector going forward.
- Health Care | We believe, at the time of portfolio selection, that the health care sector is attractively valued with solid fundamentals, which has helped maintain its more non-cyclical properties
amid the current increased volatility. Within the sector, we see the outlook for accelerating innovation and increasing consolidation as a potential benefit to the biotechnology industry.
- Information Technology | The top priority for the White House is to ensure the safety
and health of the American people. Cutting edge technology companies and major online
platforms will play a crucial role in this effort. The U.S. government is actively pursuing several
technology companies about how they can use location data collected to combat COVID-19,
including tracking whether people are keeping one another at safe distances to curtail
2 The Washington Post
The Russell 3000 Index is an unmanaged index used to measure the performance of the largest 3000 U.S.
stocks based on total market capitalization. The index cannot be purchased directly by investors.
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
Portfolio Selection Process
We believe that the communication services, consumer discretionary, health care, industrials
and information technology sectors have the potential to lead the economic recovery once the
COVID-19 pandemic is behind us.
We begin with the Russell 3000 Index to create an initial universe of stocks with a market-cap
above $10 billion that are in the sectors listed above. Next we examine the historical financial
results of the stocks from the initial universe. The stocks are then evaluated using fundamental
factors such as sales, earnings and cash flow growth; valuation factors such as price/earnings,
price/cash flow, price/sales and price/book; and technical factors such as price momentum and
An estimated value is calculated for each of the companies utilizing a Cash Flow Return on
Investment (CFROI) method. A secondary valuation is also made employing a concept called
Economic Margin. The companies which currently trade at an attractive market price relative to
their estimated value are favored over companies that do not.
The final portfolio is then selected by a team of equity analysts who evaluate each stock by
examining the stock’s relative valuation and other qualitative factors such as competitive
advantages, new products and quality of management.
Our selection process attempts to find the stocks with the best prospects for above-average
capital appreciation by identifying those that meet our investment objectives, trade at attractive
valuations, and, in our opinion, are likely to exceed market expectations of future cash flows.
The final portfolio is comprised of 40 approximately equally weighted American Recovery stocks.
|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 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.
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.
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.
The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December
2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to
disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic
growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global
financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short
term or may last for an extended period of time, and in either case could result in a substantial economic
downturn or 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.
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