Senior Loan and Dividend Growers Portfolio, Series 20
Investors who are looking for income while still retaining growth potential have limited alternatives when faced with the possibility of rising interest rates. The Senior Loan and Dividend Growers Portfolio seeks to address this challenge by investing in common stocks of companies with a history of dividend growth and the capacity to increase their dividends over time, as well as closed-end funds and exchange-traded funds which invest in senior loan floating rate securities.
This unit investment trust seeks current monthly income and capital appreciation; however, there is no assurance the objectives will be met.
The Importance of Dividends
Due to the fact that corporations are not obligated to share their earnings with stockholders, dividends
may be viewed as a sign of a company’s profitability as well as management's assessment of the future,
in our opinion. In fact, 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 41% of the 10.16% average annual total return on the S&P 500
Index, from 1926 through 2017. 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.
Past performance is no guarantee of future results.
What Are Senior Loans?
Senior loans are secured debt extended to non-investment grade corporations. A key characteristic of senior loans is their floating-rate feature, which resets generally every 30 to 90 days based on prevailing short-term interest rates. We believe that there is potential for interest rates to move higher making senior loans attractive because of this resetting feature. Senior loans typically generate a higher level of income as short-term interest rates rise, providing a potential offset to traditional fixed-rate bond holdings which typically come under pressure in periods of rising rates.
In addition, we believe senior loans currently offer a compelling value given that the default rate in the senior loan market is well below its long term historical average, the U.S. is experiencing slow but positive economic growth, and there continues to be strong investor demand for the asset class.
|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 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, closed-end funds and exchange-traded funds that invest in senior loan floating rate securities.
Common stocks are subject to 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.
Closed-end funds and 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, closed-end funds 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 and closed-end funds frequently trade at a discount from their net asset value in the secondary market.Certain of the funds in which the
portfolio invests may employ the use of leverage which increases the volatility of such funds.
An investment in a portfolio containing 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.
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
The yield on closed-end funds and 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 ("high-yield" securities or "junk" bonds). Investing in such 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 high-yield securities 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 funds 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.
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.
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.
For a discussion of additional risks of investing in the trust see
the “Risk Factors” section of the prospectus.
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 cyber security.
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.