FT Strategic Fixed Income ETF, Series 7
The FT Strategic Fixed Income ETF Portfolio is a unit investment trust which seeks to provide
investors with income and diversification across fixed income asset classes. To accomplish this, the
portfolio invests in a broad range of exchange-traded funds (ETFs) which are further diversified
among U.S. and foreign fixed income securities. This trust is designed to complement a well-diversified
fixed income allocation within an investor’s investment plans by potentially enhancing
the overall return profile for investors with a suitable risk tolerance. This portfolio may also be a
complement to an equity income or dividend strategy given the high correlation between many
of the fixed income positions and equities.
The portfolio consists of First Trust® ETFs advised by First Trust Advisors L.P., an affiliate of the trust’s
sponsor and the largest sponsor of actively-managed fixed income ETFs with $32.71 billion in
assets under management.4 The ETFs included in the portfolio are actively managed and have been
selected by the First Trust Advisors Model Investment Committee through a dynamic approach.
Asset classes in the portfolio include, but are not limited to, convertible securities, government bonds, high-yield bonds, investment grade corporate bonds,
mortgage-backed securities, preferred securities, senior loans, and ultra-short maturity bonds.
The fixed-income ETFs selected for the portfolio are based on the following factors:
- A minimum market capitalization of $50,000,000
- At least six months of trading history
- Current valuations
- Underlying fund holdings’ credit ratings
- Fund exposure to different fixed-income asset types
What is an ETF
ETFs offer investors the opportunity to buy and sell an entire basket of securities with a single
transaction throughout the trading day. ETFs combine the characteristics of a mutual fund with
the convenience and trading flexibility of stocks. Below is a list of other ETF features.
ETFs hold a basket of securities which helps to mitigate single security risk. It
is important to note that diversification does not guarantee a profit or protect against loss.
ETF holdings are available daily so investors know what they own.
Tax Efficiency |
The ETF structure allows for increased tax efficiency.
Fully Invested |
Unlike a traditional mutual fund, ETFs do not need to hold cash in order to
satisfy investor redemptions which allows them to better adhere to their investment objective.
This unit investment trust seeks a high rate of current monthly income by investing in a diversified
portfolio of fixed income ETFs; 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.
An investment in this unmanaged unit investment trust should be made
with an understanding of the risks involved with owning ETFs and fixed income securities.
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.
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 floating-rate securities. A floating-rate security is an instrument in which the
interest rate payable on the obligation fluctuates on a periodic basis based upon changes in an interest
rate benchmark. As a result, the yield on such a security will generally decline in a falling interest rate
environment, causing the trust to experience a reduction in the income it receives from such securities.
Certain of the floating-rate securities pay interest based on LIBOR. The United Kingdom’s Financial Conduct
Authority (“FCA”), which regulates LIBOR, intends to cease making LIBOR available as a reference rate over
a phase-out period that began in early 2022. However, subsequent announcements by the FCA, the LIBOR
administrators, and other regulators indicate that it is possible that the most widely used LIBOR rates may
continue until mid-2023. The unavailability or replacement of LIBOR may affect the value, liquidity or return
on certain portfolio investments. Any potential effects of the transition away from LIBOR can be difficult to
ascertain, and they may vary depending on a variety of factors and they could result in losses to the portfolio.
All 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.
All of the ETFs invest in investment grade securities. Investment grade securities are subject to numerous
risks including higher interest rates, economic recession, deterioration of the investment grade security
market or investors’ perception thereof, possible downgrades and defaults of interest and/or principal.
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 not rise during the life of the trust.
Certain of the ETFs invest in mortgage-backed securities. Rising interest rates tend to extend the
duration of mortgage-backed securities, making them more sensitive to changes in interest rates, and may
reduce the market value of the securities. In addition, mortgage-backed securities are subject to prepayment
risk, the risk that borrowers may pay off their mortgages sooner than expected, particularly when interest
Certain of the ETFs invest in preferred securities. Preferred securities are sensitive to changes in interest rates
and the market price generally falls with rising interest rates. Preferred securities are more likely to be called
for redemption in a declining interest rate environment. Preferred securities are typically subordinated to
bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income,
and therefore will be subject to greater credit risk than those debt instruments.
Certain of the ETFs invest in senior loans. The yield on ETFs which invest in senior loans will generally decline
in a falling interest rate environment and increase in a rising interest rate environment. Senior loans are
generally below investment grade quality (“junk” bonds). An investment in senior loans involves the risk that
the borrowers may default on their obligations to pay principal or interest when due.
Certain of the ETFs invest in covenant-lite loans which contain fewer or no maintenance covenants and may
hinder the ETFs’ ability to reprice credit risk and mitigate potential loss especially during a downturn in the
Certain of the ETFs invest in U.S. Treasury obligations which are subject to numerous risks including higher
interest rates, economic recession and deterioration of the bond market or investors’ perceptions thereof.
Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting non-U.S. issuers.
Approximately one year after the United Kingdom officially departed the European Union (commonly
referred to as “Brexit”), the United Kingdom and the European Union reached a trade agreement that became
effective on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit
trade agreement may have on the portfolio’s investments and this certainly could negatively impact current
and future economic conditions in the United Kingdom and other countries, which could negatively impact
the value of the portfolio’s investments.
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 and may continue to cause significant volatility and declines in global financial markets. While the U.S. has resumed “reasonably” normal business activity, 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.
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.
For a discussion of additional risks of investing in the trust see the “Risk Factors” section of the prospectus.