Inflation Hedge Portfolio, Series 49
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 2030/31. Growth in global agricultural trade is driven
primarily by rising food and feed demand in developing countries.
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.
An 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, ETFs and ETPs.
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.
The ETPs held by the trust rely on custodians for the
safekeeping of commodities. Failure by a custodian to safekeep the commodities could result in a loss to
a fund. In addition, a custodian may not carry adequate insurance to cover claims against it which could
adversely affect the value of a fund’s assets, and in turn the value of the trust.
Certain of the ETFs invest in 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.
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.
Approximately 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
effective on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit
trade agreement may have on the portfolio’s investments and this certainly could negatively impact current
and future 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.
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 has caused significant volatility and declines in global financial markets,
causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed
for the resumption of “reasonably” normal business activity in the United States, although many countries
continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective
against emerging variants of the disease.
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