Diversified Fixed Income ETF Portfolio, Series 36
The Diversified Fixed Income ETF Portfolio is a unit investment trust which seeks to provide investors
with current monthly income and diversification across fixed income asset classes. To accomplish
this, the portfolio invests in a broad range of exchange-traded funds (ETFs) which are further
diversified among U.S. and foreign fixed income securities of various maturities and credit quality.
Instead of using multiple investments, investors may be able to fulfill the fixed income allocation
within their investment plans with this single, diversified portfolio.
What is Asset Allocation?
Asset allocation is the process of developing a diversified investment portfolio by combining
different assets in varying proportions. A portfolio's long-term performance is determined
primarily by the distribution of dollars among asset classes. The asset allocation decision is one of
the most important decisions you will make as an investor. Studies have found that an asset
allocation policy is the number one factor in determining both the return and the risk of an
What is an ETF?
ETFs offer investors the opportunity to buy and sell an entire basket of securities with a single transaction throughout the trading day. ETFs combine the characteristics of a mutual fund with the convenience and trading flexibility of stocks. Below is a list of other ETF features.
- Diversification - ETFs hold a basket of securities which helps to mitigate
single security risk. It is important to note that diversification does not
guarantee a profit or protect against loss.
- Transparency - ETF holdings are available daily so investors know what they
- Tax Efficiency - The ETF structure allows for increased tax efficiency.
- Fully Invested - Unlike a traditional mutual fund, ETFs do not need to hold
cash in order to satisfy investor redemptions which allows them to better
adhere to their investment objective.
This unit investment trust seeks a high rate of
current monthly income by investing in a
diversified portfolio of fixed income ETFs;
however, there is no assurance the objective
will be met.
| 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 advisor
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 ETFs and fixed income securities.
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 ETFs may employ the use of leverage which increases the volatility of such funds.
Certain of the ETFs invest in floating-rate securities. A floating-rate
security is an instrument in which the interest rate payable
on the obligation fluctuates on a periodic basis based upon
changes in an interest rate benchmark. As a result, the yield on
such a security will generally decline in a falling interest rate
environment, causing the trust to experience a reduction in the
income it receives from such securities.
All of the ETFs invest in investment grade securities. Investment
grade securities are subject to numerous risks including higher
interest rates, economic recession, deterioration of the investment
grade security market or investors' perception thereof, possible
downgrades and defaults of interest and/or principal.
Certain of the ETFs included invest in securities issued by foreign issuers.
Such securities are subject to certain risks including currency and interest
rate fluctuations, nationalization or other adverse political or economic developments,
lack of liquidity of certain foreign markets, withholding, the lack of adequate
financial information, and exchange control restrictions impacting foreign issuers.
Risks associated with investing in foreign securities may be more pronounced
in emerging markets where the securities markets are substantially smaller,
less liquid, less regulated and more volatile than the U.S. and developed foreign
Certain of the ETFs included in the portfolio 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 ETFs invest in senior loans. The yield on ETFs 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 closed-end funds invest in Treasury Inflation Protected Securities ("TIPS"). TIPS are
subject to numerous risks including changes in interest rates, economic recession and
deterioration of the bond market or investors' perception thereof.
Certain of the ETFs 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.
Certain of the ETFs 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.
Certain of the ETFs invest in preferred securities. Preferred
securities are equity securities of the issuing company which pay
income in the form of dividends. Preferred securities are
typically subordinated to bonds and other debt instruments in a
company’s capital structure, and therefore will be subject to
greater credit risk than those debt instruments.
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.
For a discussion of additional risks of investing in the trust see the "Risk Factors" section of the prospectus.
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.
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.
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 cyber security.