American Strength Portfolio, Series 4
Determining which areas of the market provide the best investment opportunities can be a
daunting task and sometimes economic climates break with tradition, making investment
decisions even more arduous. These situations have historically offered opportunities for patient
shareholders to increase their exposure in great companies.
Our goal with the American Strength Portfolio is to invest in undervalued companies with strong
market positions that have the following qualities:
- Strong balance sheets;
- Skilled management;
- Highly liquid;
- Ability to generate earnings growth; and
- Record of financial strength and profit growth.
Portfolio Selection Process
This unit investment trust
invests in a diversified
portfolio of common stocks
of companies that exhibit
financial strength from three
distinct segments of the
market. The three market
segments are weighted based on the below allocation.
Through our selection process we seek to find the companies that we believe have the best
prospects for above-average capital appreciation.
Identify the Universe | The first step in our selection process is to identify each universe from
which we will select the stocks for the three market segments. Each universe contains stocks
selected specifically for each component of the allocation.
Screen for Financial Strength | The next step in our process is to evaluate companies based
on multiple factors. These factors are designed to identify those stocks which exhibit strong
fundamental characteristics and to eliminate those that do not meet our investment criteria.
Examine Historical Financial Results | The next step in our process is to look for those
companies that have earned a net cash flow return on investment that is above the average of
their peers. Historically, companies that have increased their cash flows at a higher rate have
rewarded shareholders with superior total returns.
Select Companies with Attractive Valuations | The final step in our process is to select
companies based on the fundamental analysis of our team of research analysts. The stocks
selected for the portfolio are those that meet our investment objective, trade at attractive
valuations and, in our opinion, are likely to exceed market expectations of future cash flows.
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
Three Markets Segments
Capital Strength | Companies with sizeable cash positions tend to be mature companies that
dominate their industries. A company with a significant amount of cash on its balance sheet is
attractive for many reasons. Cash enables companies to bypass the credit markets and provides
the means to:
- Make strategic cash-financed mergers and acquisitions;
- Begin to pay dividends or increase dividend payments to boost returns;
- Repurchase undervalued shares;
- Reinvest cash to grow their business;
- Fund research and development projects, even in a down market.
Dividend Strength | Due to the fact that corporations are not obligated to share their earnings
with stockholders, dividends may be viewed as a sign of a company’s profitability as well as
management’s assessment of the future, in our opinion. Additionally, dividends have historically
been one of the few constants in the world of investing, contributing nearly half of the stock
market’s total returns. According to Ibbotson Associates, dividends have provided approximately
39% of the 10.46% average annual total return on the S&P 500 Index, from 1926 through 2021.
The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock
market performance. The index cannot be purchased directly by investors.
SMid Capital Strength | SMid refers to both small and mid-size companies. Because smaller
companies are often less reliant on the capital markets for credit, they can be more nimble and
better able to adjust in periods of economic change than large companies. Additionally, this
results in generally better balance sheet integrity than large companies. These companies are
more likely to be in an earlier stage of their economic life cycle than mature large-cap companies.
In addition, the ability to take advantage of share price discrepancies is likely to be greater with
smaller stocks than with more widely followed large-cap 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.
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.
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.
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, 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 COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of the disease.
Although this portfolio terminates in approximately 15 months, the strategy is long-term. Investors should consider their ability to pursue investing in successive portfolios, if available. There may be tax consequences unless
units are purchased in an IRA or other qualified plan.