Interest Rate Hedge Portfolio, Series 119
We believe there is the potential for rising interest rates in the coming years. Although past
performance is not a guarantee of future results, bonds tend to lose value in a rising interest rate
environment while equities, on the other hand, have often historically provided positive returns after
the Federal Reserve's initial rate hike. Like stock returns, economic growth, and inflation, interest rates
are one of those variables that you can't control. As an investor, however, you can control how your
investment dollars are allocated.
The Interest Rate Hedge Portfolio is a professionally-selected unit investment
trust which invests in common stocks of companies that have a history of dividend
growth, as well as closed-end funds (CEFs) which invest in convertible securities,
Treasury Inflation Protected Securities (TIPS), master limited partnerships
(MLPs), limited duration bonds and real estate investment trusts (REITs).
This unit investment trust seeks above-average total return; however, there is no assurance the objective will be met.
Investing for Rising Interest Rates
- Dividends have historically been one of the few constants in the world of investing, • contributing nearly
half of the stock market’s total returns. According to Ibbotson Associates, dividends have provided
approximately 41% of the 10.16% average annual total return on the S&P 500 Index, from 1926 through
2017. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock
market performance. The index cannot be purchased directly by investors. Past performance is no
guarantee of future results.
- Convertible securities are bonds, preferred stocks, or other securities
issued by a corporation which are convertible into common stock at a specified
ratio. Because of this, convertible securities have some characteristics of
both common stocks and bonds. Like stocks, convertible securities offer capital
appreciation potential. Additionally, the hybrid nature of convertible securities
makes them tend to be less sensitive to interest rate changes than bonds of
comparable quality and maturity.
- MLPs are limited partnerships that are publicly traded on a U.S. securities
exchange, which combine the tradeability of common stocks with the corporate
structure of a limited partnership. MLPs are traditionally high cash flow
businesses that pay out a majority of that cash to investors. Investing in
MLPs through closed-end funds provides an efficient alternative to investing
directly in MLPs. Unlike individual partnership investments, a closed-end fund
provides one Form 1099 per shareholder at the end of the year, rather than
multiple K-1s and potential state filings.
- TIPS are bonds issued by the U.S. government that are designed to provide
inflation protection to investors. With TIPS, the coupon payments and principal
value are adjusted according to inflation over the life of the bonds.
- 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.
- Limited duration bonds provide investors with high income but with less
interest rate sensitivity than longer duration bonds. The duration of a bond
is a measure of its price sensitivity to interest rate movements based on
the weighted average term to maturity of its interest and principal cash flows.
Historically, closed-end funds that invest in limited duration bonds have
tended to hold up better in rising interest rate environments than closed-end
funds which invest in longer duration bonds.
|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 an
investment in a portfolio of closed-end funds. Closed-end funds
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 the funds 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, closed-end funds
frequently trade at a discount to their net asset value in the
secondary market. All of the closed-end funds employ the use of
leverage, which increases the volatility of such funds.
You should be aware that an investment in closed-end funds that
invest in stocks in the energy sector involves additional risks,
including limited diversification. The companies engaged in the
energy sector, which includes MLPs, 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.
All of the closed-end funds invest in common stocks. Common
stocks are subject to 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
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.
All of the closed-end funds invest in MLPs. Investments in
MLPs are subject to the risks generally applicable to companies
in the energy and natural resources sectors, including
commodity pricing risk, supply and demand risk, depletion risk
and exploration risk. U.S. taxing authorities could challenge the
trust 's treatment of the MLPs for federal income tax purposes.
These tax risks could have a negative impact on the after-tax
income available for distribution by the MLPs and/or the value
of the trust's investments.
Certain of the closed-end funds 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.
One of the closed-end funds invests in call options. Options are
subject to various risks including that their value may be
adversely affected if the market for the option becomes less
liquid or smaller. In addition, options will be affected by changes
in the value and dividend rates of the stock subject to the
option, an increase in interest rates, a change in the actual and
perceived volatility of the stock market and the common stock
and the remaining time to expiration.
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.
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.
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.