Interest Rate Hedge Portfolio, Series 146
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 invests in common stocks of companies with a history of
dividend growth, as well as exchange-traded funds (ETFs) which invest in convertible securities,
Treasury Inflation Protected Securities (TIPS), master limited partnerships (MLPs), limited
duration bonds and real estate investment trusts (REITs).
- 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 39% of the 10.46% average annual total return on
the S&P 500 Index, from 1926 through 2021. 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.
- 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 ETFs provides an efficient alternative to
investing directly in MLPs. Unlike individual partnership investments, an exchange-traded
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.
- REITs are currently required to distribute at least 90% of their income annually as dividends to
shareholders. Historically, this has made REITs a significantly higher source of income versus
other equities and competitive with traditional fixed income investments. It should be noted
that dividends paid by REITs are generally not eligible for the reduced tax rates for qualified
- 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.
This unit investment trust seeks above-average total return; however, there is no
assurance the objective will be met.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
Past performance is no guarantee of future results.
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 and ETFs.
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.
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.
Certain of the ETFs invest in convertible securities. Convertible securities are bonds, preferred stocks and
other securities that pay a fixed rate of interest (or dividends) and will repay principal at a fixed date in the
future. However, these securities may be converted into a specific number of common stocks at a specified
time. As such, an investment in convertible securities entails some of the risks associated with both common
stocks and bonds.
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 limited duration bonds. Limited
duration bonds are subject to interest rate risk, which is the risk that the value of a security will fall if interest
rates increase. While limited duration bonds are generally subject to less interest rate sensitivity than longer
duration bonds, there can be no assurance that interest rates will rise during the life of the trust.
Certain of the ETFs invest in MLPs. 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 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 TIPS. TIPS are subject to numerous risks including changes in interest rates,
economic recession and deterioration of the bond market or investors’ perception thereof.
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.
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.
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.