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Pharmaceutical Select Portfolio, Series 41

During this critical time, amid the COVID-19 pandemic, the pharmaceutical industry is being relied upon more than ever. Each year, companies in the pharmaceutical industry are expected to deliver innovative strategies to determine the nature or cause of a disease/disorder, and to create preventatives and therapeutics to combat them. In 2018, the value of the global pharmaceutical market reached $1.2 trillion, up $100 billion from 2017. By 2023, it is anticipated to reach $1.5 trillion and is predicted to grow at a 3-6% compound annual growth rate over the next three years.1

Consider The Following

  • The Food and Drug Administration (FDA) has updated policies to achieve more rapid vaccine development and testing in laboratories, helping to expand the number and variety of diagnostic tests.The Food and Drug Administration (FDA) has updated policies to achieve more rapid vaccine development and testing in laboratories, helping to expand the number and variety of diagnostic tests.3
  • For years lawmakers have been concerned that the U.S. is too reliant on foreign manufacturing of medicine, which has only increased amid the COVID-19 outbreak. Some are highlighting legislation, including the “Pharmaceutical Independent Long-Term Readiness Reform Act,” that would bring the manufacturing of many of these drugs back to the U.S.
  • Currently, there are approximately 8,000 medicines in clinical development around the world. Of these, 74% have the potential to be first-in-class treatments, which represents an entirely new approach to treating a disease.4

1 Pharmaceutical Commerce
2 Statista
3 FDA
4 PhRMA

Demand Driven By Need

In our opinion, the demand for prescription and over-the-counter drugs is driven more by need than price. According to Pew Research Center, between 2011 (when the oldest baby boomer reached age 65) and 2029 (when the youngest baby boomer turns age 65), roughly 3.8 million baby boomers are expected to turn 65 each year, or about 10,000 daily. We believe that as average life expectancies increase, the number of people at risk for disease will increase, and as a result, the demand for prescription and over-the-counter drugs will increase as well.

Portfolio Selection Process

An initial universe of pharmaceutical stocks is created by selecting stocks that have significant business operations in the pharmaceutical or biotechnology industries, trade on a U.S. stock exchange and have adequate liquidity for investment.

Next we examine the historical financial results of the stocks from the initial universe. The stocks are then evaluated using fundamental factors such as sales, earnings and cash flow growth; valuation factors such as price/earnings, price/cash flow, price/sales and price/book; and technical factors such as price momentum and earnings surprises.

An estimated value is calculated for each of the companies utilizing a Cash Flow Return on Investment (CFROI) method. A secondary valuation is also made employing a concept called Economic Margin. The companies which currently trade at an attractive market price relative to their estimated value are favored over companies that do not.

The final portfolio is then selected by a team of equity analysts who evaluate each stock by examining the stock’s relative valuation and other qualitative factors such as competitive advantages, new products and quality of management.

Our selection process attempts to find the stocks with the best prospects for above-average capital appreciation by identifying those that meet our investment objectives, trade at attractive valuations, and, in our opinion, are likely to exceed market expectations of future cash flows.

The final portfolio is comprised of 25 equally weighted pharmaceutical stocks.

Portfolio Objective

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 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.

Risk Considerations
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 stock market.

You should be aware that the portfolio is concentrated in biotechnology and pharmaceutical companies in the health care sector which involves additional risks, including limited diversification. The companies engaged in the biotechnology and pharmaceutical industries are subject to fierce competition, high research and development costs, governmental regulations, loss of patent protection, and changing consumer spending trends. In addition, health crises, such as a pandemic outbreak, can severely impact the health care industry in particular.

Certain securities held by the portfolio are issued by companies in Europe. The United Kingdom vote to leave the European Union and other recent rapid political and social change throughout Europe make the extent and nature of future economic development in Europe and the effect on securities issued by European issuers difficult to predict.

An investment in foreign equities should be made with an understanding of the additional risks involved with foreign issuers, such as currency fluctuations, political risk, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.

On January 31, 2020, the United Kingdom officially departed the European Union (commonly referred to as “Brexit”). Brexit has led to volatility in global financial markets, in particular those of the United Kingdom and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial confidence in the United Kingdom and Europe.

Large capitalization companies may grow at a slower rate than the overall market.

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.

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.

Local, regional or global events such as war, acts of terrorism, spread of infectious diseases or other public health issues, recessions, or other events could have a significant negative impact on the portfolio and its investments. Such events may affect certain geographic regions, countries, sectors and industries more significantly than others. The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December 2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to disrupt manufacturing, supply chains and sales in affected areas, negatively impact global economic growth prospects, and could result in a substantial economic downturn or recession.

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.

 
The information in the prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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