Diversified Equity Strategic Allocation Portfolio, 4th Quarter 2023 Series
The Diversified Equity Strategic Allocation Portfolio is a unit investment trust which is designed
to provide broad equity diversification by investing in common stocks across various market
capitalizations, growth and value styles, sectors and countries. The trust 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 trust seeks above-average total return;
however, there is no assurance the objective will be met.
A Tactical Approach To Security Selection
When selecting stocks for the portfolio we apply a proprietary rules-based selection process
which analyzes stocks to assess valuations based on multiple factors. Our goal is to identify
stocks which exhibit the fundamental characteristics that enable them to provide the greatest
potential for capital appreciation.
1. Identify the Universe of Eligible Stocks
The first step in our selection process is to establish a universe of stocks from which the
portfolio will be selected. The universe is divided into seven distinct styles consisting of six
domestic equity asset classes and one international equity asset class.
The domestic universe is established by identifying the 3,000 largest U.S. stocks (excluding
limited partnerships, royalty trusts, regulated investment companies and business
development companies) and then separating them into large-cap (largest 10%), mid-cap
(next 20%), and small-cap (remaining 70%). The stocks in each group are then divided
evenly between growth and value by their price-to-book ratios to establish the universe of
stocks eligible for selection from within each asset class. In the case of the small-cap
universe, only the 250 largest stocks with a minimum average daily trading volume of
$1,000,000 within each growth and value group are included to ensure sufficient liquidity.
The international universe consists of the 100 largest companies from developed nations
which are ADRs or directly listed in the United States.
2. Apply the rules-based stock selection models
We then rank the stocks within each of the seven universes based on two multi-factor
models. Half of a stock’s ranking is based on a risk model and the remaining half is based on
a model which is determined by their style designation. Value and international stocks are
ranked on one model while growth stocks are ranked using a separate model.
3. Select the Highest Scoring Stocks
The 30 stocks with the best overall ranking from each of the seven style classes are selected
for the portfolio, subject to a maximum of six stocks from any one of the major market
sectors. The financials and real estate sectors are combined for the sector limit purpose. The
seven style classes are approximately weighted based on the allocation shown below. Stocks
are approximately equally weighted within their style.
||Average Annual Total Returns*
||S&P 1500 Index
||S&P 1500 Index
|Annual Total Returns
||S&P 1500 Index
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 1500 Index. Hypothetical strategy returns were the result
of certain market factors and events which may not be replicated in the future. You 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 1.85% and
estimated annual operating expenses of 0.185%, plus
organization costs, but not taxes or commissions paid by the
portfolio to purchase securities. Strategy returns assume that
dividends are reinvested semi-annually while index returns
assume dividends 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 1500 Index
in certain years and may produce negative results.
The S&P 1500 Index is an unmanaged index of 1500 stocks
representing the large cap, mid cap and small cap segments of
the U.S. equity market. The index cannot be purchased directly
Standard Deviation is a measure of price variability (risk). A
higher degree of variability indicates more volatility and
therefore greater risk.
|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.
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
Certain of the securities in the portfolio are issued by Real Estate Investment Trusts (REITs). Companies
involved in the real estate industry are subject to changes in the real estate market, vacancy rates and
competition, volatile interest rates and economic recession.
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.
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 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.
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.