Inflation Hedge Portfolio, Series 45
When it comes to investing — whether for income or for growth — you can’t afford to
ignore the eroding effect inflation can have on the value of your assets. The Inflation Hedge
Portfolio is a professionally selected unit investment trust which invests in exchange-traded
funds (ETFs) which invest in real estate investment trusts (REITs), senior loans or government
bonds, exchange-traded products (ETPs) which invest in commodities, such as gold and silver,
and in common stocks of agriculture companies, energy companies and materials companies
(including metals and mining companies). Many factors will affect the value of the securities
in the trust and there can be no assurance that the trust will achieve a positive return during an
This unit investment trust seeks above-average
total return; however, there is no assurance the
objective will be met.
Investing to Counteract Inflation
Like stock returns, economic growth, and interest rates, inflation is one of those variables you
can’t control. But, as an investor, you can control how your investment dollars are allocated. For
many investors, investing in natural resources, precious metals, REITs and bonds that typically
react favorably to inflation are ways to hedge against inflation in a properly diversified portfolio.
Gold and Precious Metals
Gold and other precious metals have historically held their value during times of rising inflation.
Investing in the commodities themselves is not the only way to hedge against rising inflation.
Mining companies also tend to benefit as their earnings should improve if the price of gold and
other precious metals rises. Such hedging may also be accomplished by investment in ETPs which
themselves invest in commodities such as gold and silver.
When economic activity accelerates, whether in the U.S. or abroad, the global demand for natural
resources grows. The resulting increase in the underlying commodity prices historically generates
higher profits for companies in the energy sector and translates into higher returns for investors.
Real estate has traditionally been a good hedge against higher inflation. Historically, REITs have
performed well in times when the economy improves and inflation and interest rates trend higher.
In addition, an improving economy tends to lead to better occupancy rates in commercial
buildings and malls which often results in dividend increases among REITs.
The negative effects of inflation on bonds may be offset through ETFs which invest in inflation-linked
bonds. Inflation-linked government bonds, commonly known in the U.S. as Treasury
Inflation-Protected Securities (TIPS), are securities issued by governments that seek to provide
inflation protection to investors. The coupon payments and principal value on these securities are
adjusted according to inflation over the life of the bonds.
Senior loans are floating-rate secured debt extended to non-investment grade corporations which are
backed by collateral, such as property, and are senior in the capital structure of a company. The capital
structure is how a company finances its overall operations and growth by using different sources of
funds such as long-term debt, short-term debt, common equity and preferred equity. Investors may find
comfort in the fact that senior loans have a senior secured position in the capital structure, thereby
having a claim not only on the cash flow of a given company, but also its assets. This added security has
historically offered investors less volatility in relation to the junior parts of a given capital structure.
According to the USDA, global demand and trade for agricultural products
are anticipated to continue rising through 2029/30. Income growth and urbanization are
expected to remain strong, especially in many emerging and developing economies, giving
strong incentive for sustained growth in demand and trade for agricultural products.
Basic materials companies operate in a wide array of commodity-related businesses. Some examples
include chemicals, construction materials, glass, paper, forest and related packaging products, metals,
minerals and mining companies. This sector is cyclical in nature, which is to say that the demand for raw
materials and related products is largely driven by economic activity, particularly in the manufacturing
sector. When economic activity accelerates, the demand for raw materials often rises – as do prices.
|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.
investment in this unmanaged unit
investment trust should be made with an
understanding of the risks involved with
an investment in a portfolio of common
stocks and exchange-traded funds.
ETFs and ETPs 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, the ETPs 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 and ETPs may trade at a discount from their net asset value in the secondary market.
Common stocks are subject to certain
risks, 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.
The portfolio is concentrated in stocks in both the
energy and materials sectors making it subject to additional risks, including limited
diversification. The companies engaged in the energy sector are subject to certain risks,
including price and supply fluctuations caused by international politics, energy conservation,
taxes, price controls, and other regulatory policies of various governments. Falling oil and gas
prices may negatively impact the profitability and business prospects of certain energy
companies. The companies engaged in the materials sector, including companies within the
precious metals industry, are subject to price and supply fluctuations, excess capacity, economic
recession, domestic and international politics, government regulations, volatile interest rates,
consumer spending trends and overall capital spending levels.
The portfolio also invests in precious metals companies. Companies in the precious metals
industry are subject to risks associated with the exploration, development, and production of
precious metals including competition for land, difficulties in obtaining required governmental
approval to mine land, inability to raise capital, increases in production costs and political
unrest. In addition, the price of gold and other precious metals is subject to wide fluctuations.
The portfolio also invests in agribusiness companies. Agribusiness companies are subject to
cyclicality of revenues and earnings, economic recession, currency fluctuations, changing
consumer tastes, extensive competition, excess capacity, product liability litigation and
governmental regulation and subsidies.
The ETPs invest in commodities. Commodity prices are subject to several factors including, price and
supply fluctuations, excess capacity, economic recession, domestic and international politics, government
regulations, volatile interest rates, consumer spending trends and overall capital spending levels.
Certain of the ETFs invest in 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.
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 ETFs invest in covenant-lite loans
which contain fewer or no maintenance
covenants and may hinder the ETF’s ability to
reprice credit risk and mitigate potential loss
especially during a downturn in the credit cycle.
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.
A portfolio which is invested in 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 developed, less
liquid, less regulated, and more volatile than the U.S. and developed foreign markets.
About one year after the United Kingdom officially departed the European Union (commonly referred to as “Brexit”), the United Kingdom and the European Union reached a trade agreement that became effectiveon December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit tradeagreement may have on the portfolio’s investments and this certainly could negatively impact current andfuture economic conditions in the United Kingdom and other countries, which could negatively impact the value of the portfolio’s investments.
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.
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. This unit investment trust is not an absolute return investment vehicle.
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.
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.
For a discussion of additional risks of investing in the trust see the "Risk Factors" section of