Emerging Markets Strength Portfolio, Series 40
What are Emerging Markets?
Emerging markets are countries that are attempting to change and improve their current economies.
Size itself is not a factor for determining an emerging market, as evidenced by China. The objective of an
emerging market is to raise economic performance and, as a result, become a more advanced nation.
Collectively, developing economies are anticipated to grow faster than the economies of countries which
are already developed. According to the International Monetary Fund, GDP growth for emerging
economies is estimated to be 4.9% in 2018 and 5.0% in 2019 compared to 2.3% in 2018 and 2.2% in
2019 for advanced economies.
By investing a portion of your portfolio outside the U.S., you may significantly expand your investment
choices and participate in the long-term growth potential of foreign companies. To predict which
countries will emerge and reward those for taking on the risk to invest in them is a difficult task. Through
our selection process we seek to find the emerging markets stocks that we believe have the best
prospects for above-average capital appreciation.
This unit investment trust seeks aboveaverage capital appreciation; however,
there is no assurance the objective will be met. The trust terminates approximately
two years from the initial date of deposit.
Portfolio Selection Process
Identify the Universe
We begin by selecting stocks that are based in an emerging
market or have significant business operations in emerging markets, trade on a U.S. stock exchange either
directly or through an American Depositary Receipt, and have adequate liquidity for investment.
Screen for Financial Strength
We then 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 objectives, trade at attractive valuations and,
in our opinion, are likely to exceed market expectations of future cash flows.
|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 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 both the consumer
products and information technology sectors making it subject to additional risks,
including limited diversification. The companies engaged in the consumer products
industry are subject to global competition, changing government regulations and
trade policies, currency fluctuations, and the financial and political risks inherent in
producing products for foreign markets. 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
An investment in a portfolio containing equity securities of foreign issuers
is subject to additional risks, including currency fluctuations, political risks,
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 markets.
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.
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.
Because the portfolio is concentrated in
companies headquartered or incorporated in
China, the portfolio may present more risks
than a portfolio which is broadly diversified
over several regions. China's emerging market
economy may be subject to over-extension of
credit, currency devaluations and restrictions,
decreased exports, economic recession, a
reversal of economic liberalization, political
unrest or changes in China's trading status. A
deterioration of the relationship between
China and the United States could have
negative implications on issuers from China.
Certain securities held by the portfolio are issued by companies in the Asia Pacific region, making
the portfolio more susceptible to the economic, market, regulatory, political, natural disasters
and local risks of the Asia Pacific region. The region has historically been highly dependent on
global trade which creates a risk with this dependency on global growth. The stock markets
tend to have a larger prevalence of smaller companies that are inherently more volatile and less
liquid than larger companies.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.
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.