IPOX® 25 Portfolio, Series 1
When a company decides to “go public,” they participate in an initial public offering, or IPO, to make their shares available to the general public for the first time. Companies engage in IPOs for various
reasons including to gain access to the capital markets in order to fund future growth and expansion. There is often a lot of excitement surrounding an IPO and it is common for the closing market share
price shortly after the IPO to be well above or below the initial offering price. The IPOX® 25 Portfolio provides a unique way for investors to add diversified exposure to newly listed companies. Moreover, the portfolio provides a way to gain access into the innovation
and potential growth of the U.S. economy within a disciplined and transparent product.
The IPOX®-100 U.S. Index measures the performance of the top 100 U.S. IPOs and spin-offs ranked quarterly by market capitalization in the IPOX Global Composite Index. In general, eligible constituents
are added on the sixth day of trading and remain eligible to be included in the index for approximately four years. The index follows a well-researched,
totally disciplined and transparent methodology and has historically captured around 85% of total market capitalization created through U.S. IPO activity during the past four years.
Broaden Market Exposure
While IPOs constitute a significant portion of the capital markets, there is a substantial time lag
before they are added to most broad equity indexes. A portfolio of recent IPOs may complement a
core domestic holding by providing more complete exposure to the total equity market.
- As of 12/31/2020, the IPOX®-100 Index holdings represented just 4.36% of the Russell
3000 Index, despite the fact that these stocks had an average market capitalization of
approximately $14.8 billion each.1
- The U.S. IPO market is economically significant. Since 1995, an average of $350 billion per year
in market cap has been created through U.S. IPO and spin-off activity.
- In 2020, 210 companies went public, including IPOs, spin-offs and direct listings, an increase
of 25.00% from 2019. These companies raised $76.29 billion, up 74.49% from 2019.2
This unit investment trust seeks capital appreciation; however, there is no assurance the objective
will be met.
Portfolio Selection Process
Identify the Universe – We begin with all constituents in the IPOX®-100 Index that have been
trading for at least six months and eliminate Real Estate Investment Trusts (REITs), Regulated
Investment Companies (RICs), and Limited Partnerships (LPs). All companies selected for the
portfolio must have a market capitalization greater than $1 billion and a 3-month average daily
trading volume of greater than $5 million as of the date the portfolio was selected. In addition,
the IPOX® 100 Index includes spin-offs and companies that are the result of merger & acquisition
(M&A) activity, so those companies may be included in the portfolio.
Rank all the Eligible Securities on Three Equally Weighted Factors
- Momentum: 3-month price appreciation (50%) and 6-month price appreciation (50%)
- Quality: Return on equity
- Growth: Estimated Revenue Growth
Select Companies with the Highest Combined Ranks - Select 25 equally weighted stocks
with the best combined factor rank, subject to a maximum of 10 stocks in any one of the major
Global Industry Classification Standards (GICS) market sectors.
1Source: FactSet. The Russell 3000 Index is a stock market index of US stocks. This index measures the
performance of 3,000 publicly held U.S. companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
2IPOX Schuster LLC
A patent with respect to the IPOX® index methodology has been issued (U.S. Pat. No. 7,698,197). IPOX® is a
registered international trademark of IPOX® Schuster LLC (www.ipoxschuster.com).
| 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 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.
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.
Large capitalization companies may grow at a slower rate than the overall market.
The stocks of companies that have recently completed an IPO are unseasoned equities lacking a trading history, a track record of reporting to investors and widely available research coverage. Stocks of these companies are
often subject to extreme price volatility and speculative trading.
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.
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.
The COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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.
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.