Nasdaq® Factor Dogs Opportunity Portfolio, Series 1
Selecting stocks based on fundamental factors has long been a hallmark of portfolio management.
Advocates of factor-based strategies favor their ability to offer exposure to a concentrated portfolio
of securities which target a desired deviation from the risk-return profile of generic market
tracking strategies. Critics of factor-based strategies point out that this deviation from traditional
market tracking strategies leaves investors exposed to heightened volatility resulting from factors
moving in and out of favor over time.
While it is true that no factor-based strategy perpetually outperforms, many investors attempt to
find the right combination of factor exposures to generate consistent market outperformance.
However, the perfect combination or timing in factor-based approaches remains elusive.
Mean Reversion: Nasdaq's Factor Allocation Solution
There has been plenty of research showing that periods of factor-specific outperformance relative
to the broader market have historically been followed by periods of underperformance, and vice-versa.
With this in mind, Nasdaq® has developed a strategy which selects securities with the
characteristics of the investment factor, dubbed the “dog” factor, which has underperformed the
other factors in the past year. The strategy invests in the companies from one of its family of
factor-specific indexes: momentum, high yield, growth, value, low volatility, and quality. By
selecting and weighting towards the factor that has been most out of favor, the strategy seeks to
capture the future upward mean reversion attributable to the “dog” factor. The example below
shows how the worst performer of Nasdaq’s six factor-specific indexes becomes the Nasdaq® Dogs
selection at the start of the following year. The value factor index was the worst performer during
the 12 months preceding the time the trust’s portfolio was selected, therefore the trust will invest
in the stocks included in the value factor index.
Given its mean reversion focus, the strategy is an inherently contrarian viewpoint. The strategy
purposefully avoids that which is currently outperforming in favor of that which has underperformed.
At first glance, many investors deem such logic counterintuitive. Yet, when comparing this
contrarian approach to its conformist counterpart, the risks of long-term performance chasing are
uncovered. The Nasdaq® Factor Dogs Opportunity Portfolio seeks to offer a transparent, rules-based
approach to factor-based allocation that is both strategic and dynamic.
This unit investment trust seeks above-average capital appreciation; however, there is
no assurance the objective will be met.
| Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objective, 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
You should be aware that the portfolio is
concentrated in stocks in both the
consumer products and financials sectors
which involves 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 financials
sector are subject to the adverse effects
of volatile interest rates, economic
recession, decreases in the availability of
capital, increased competition from new
entrants in the field, and potential
Although this portfolio terminates in
approximately 15 months, the strategy is
long-term. Investors should consider their
ability to pursue investing in successive
portfolios, if available. There may be tax
consequences unless units are purchased
in an IRA or other qualified plan.
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.
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.
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.