American Recovery Portfolio, Series 7
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.
Digital media consumption increased as people stayed at home during the COVID-19
pandamic. Consumption is expected to continue to increase across social media, over-the-top
video and online gaming.1
- Consumer Discretionary | This sector has felt the impact of the pandemic as people
cancelled trips and avoided 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 | From 2019-2028, it is projected that health care spending will grow at
an average rate of 5.4% annually.2 In addition, there are currently approximately 8,000
medicines in clinical development around the world. Of these, 74% have the potential to be
first-in-class treatments, which represents an entirely new approach to treating a disease.3
- Industrials | The industrials sector gained 11.1% in 2020, compared to 29.4% in 2019.4 With the economic recovery underway, the outlook can be positivie for this historically procyclical
sector. Typically, when the economy is growing so is the industrial sector.
- Information Technology |Gartner forecasts worldwide IT spending to total approximately
$4.2 trillion in 2021, an increase of 8.6% from 2020. In addition, end-user spending on
public cloud services is anticipated to reach $396 billion in 2021 and grow 21.7% to reach an
estimated $482 billion in 2022.
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.
You should be aware that the portfolio is concentrated in stocks in the information technology sector which involves additional risks, including limited diversification. The companies engaged in the information technology
sector are subject to fierce competition, high research and development costs, and their products and services may be subject to rapid obsolescence. Technology company stocks, especially those which are Internet-related,
may experience extreme price and volume fluctuations that are often unrelated to their operating performance.
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 COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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