The Target VIP Portfolio, 2nd Quarter 2021 Series
WHAT IS A STRATEGY?
A strategy answers the three basic questions of investing:
- What to buy?
- When to buy?
- When to sell?
Potential benefits of strategy investing:
- Removes emotion
- Consistently takes a long-term view
- Not swayed by media hype
- Eliminates difficult buy/sell decisions
COMMON OBSTACLES TO PERFORMANCE
- Holding cash
- Trading costs and other expenses
- Inflows/Outflows
- Emotion
CONSIDER THE POTENTIAL BENEFITS
OF THE TARGET VIP PORTFOLIO
The Target VIP Portfolio is a unit investment trust which provides you with the convenience
of owning six distinct strategies in one investment. It invests in a fixed portfolio of stocks
which are selected by applying pre-determined screens and factors and holds the stocks for
approximately 15 months. The portfolio offers several potential advantages:
- Complete transparency from the stock selection process to portfolio holdings
and individual stock weightings;
- Automated buy decisions helping to eliminate unwanted emotions
from the investment process;
- No style drift from manager-driven trading;
- Low cash positions so more of your money is put to work;
- Diversification, discipline, and a periodic rebalancing opportunity helping
to decrease volatility and potentially increase returns.
Keys to Strategy Investing
Diversify
We expect some strategies to perform better than others under different
market conditions. That’s why we believe it is important to diversify among different
strategies. Target VIP consists of an approximately even weighting of six distinct strategies –
each using factors or screens to select stocks designed specifically for their unique
characteristics. The result is a portfolio that is diversified across stocks from all ten S&P sectors
as well as various market capitalizations and growth and value styles. Diversification does not
guarantee a profit or protect against loss.
Have Discipline
History has shown that bear and bull markets are a normal
occurrence. Although past performance is no guarantee of future results, history has also
shown that equity investors have been rewarded for their patience over the long-term. The
chart below illustrates this point based on applying the hypothetical strategy over one year,
three year, and five year periods. Of course, there is no guarantee that the performance of the
strategy or the trust will be positive over any future time period.
Rebalance Annually
Studies have shown that rebalancing can provide
benefits to your long-term investment plan by forcing you to add to underperforming assets
and take from outperforming assets. With Target VIP, rebalancing is simple. When the
portfolio terminates, investors have the option to reinvest their proceeds, at a reduced sales
charge, into a new, rebalanced portfolio. In addition to rebalancing the individual
component strategies back to their original one-sixth weighting, new stocks are also
selected by reapplying the underlying strategies. It is important to note that rebalancing
may cause a taxable event unless units of the portfolio are purchased in an IRA or other
qualified plan.
Portfolio Selection Process
The Target VIP Portfolio seeks above-average total
return by adhering to a simple investment strategy; however, there is no assurance
the objective will be met. On the initial date of deposit, the portfolio is
approximately equally weighted among the six strategies described below.
Nasdaq® Target 15 Strategy
- Begin with the Nasdaq 100 Index®. The index represents the largest and most
active non-financial domestic and international issues listed on The Nasdaq
Stock Market®.
- Purchase a market cap-weighted portfolio of the 15 stocks with the best
overall ranking on the following criteria:
- 12 month price appreciation.
- 6 month price appreciation.
- Return on assets.
- Price to cash flow.
S&P Target 24 Strategy
- Begin with the companies listed in the S&P 500 Index.
- Select the eight largest sectors in the index based upon market capitalization.
- Purchase the three stocks from each sector with the best overall ranking
on the following criteria:
- Trailing four quarters return on assets.
- Buyback yield. A measure of the percentage decrease in a company's outstanding
common shares versus one year earlier.
- Bullish interest indicator. A comparison, over the past twelve months,
between the number of a company's shares that traded in months when the
stock price rose versus the number of shares that traded in months when
the stock price fell.
- The stocks are weighted according to their market capitalization relative
to their sector and relative to their peers within the sector.
The Dow® DART 5 Strategy
- Rank the companies in the DJIA® by a combination of dividend yield and
the percentage reduction in the number of outstanding shares over the past
12 months and select the top ten.
- Rank the ten stocks based on the one year change in return on assets and
purchase an approximately equally weighted portfolio of the top five stocks.
Target Small-Cap Strategy
- Identify U.S. companies with the following attributes:
- Trade on the NYSE, the NYSE MTK or Nasdaq (excluding limited partnerships, ADRs,
business development companies and mineral and oil royalty trusts).
- Have positive earnings over the last year.
- Have market caps between $150 million and $1 billion and average daily
trading volume of more than $500,000 (based on 1996 dollars).
- Select only companies with positive three-year sales growth.
- Eliminate any company whose stock has appreciated more than 75% in the last
12 months.
- Purchase a market cap-weighted portfolio of the 40 companies with the greatest
price appreciation in the last 12 months.
Value Line® Target 25 Strategy
- Begin with the 100 stocks that Value Line® currently gives a #1 ranking
for TimelinessTM (stocks of financial companies and companies whose shares
are not listed on a U.S. exchange are not eligible for inclusion in the Value
Line® Target 25 Strategy). Value Line® ranks approximately 1,700 stocks, only
100 of which are given their #1 ranking for TimelinessTM. They base their
rankings on a long-term trend of earnings, prices, recent earnings, price
momentum, and earnings surprises.
- Rank the stocks on four factors:
- 12 month price appreciation.
- 6 month price appreciation.
- Return on assets.
- Price to cash flow.
- Purchase a market cap-weighted portfolio of the 25 eligible stocks with the best overall
ranking on the factors, subject to a minimum weighting of approximately 1% and a
maximum weighting of approximately 25%.
European Target 20 Strategy
- Select the largest 120 companies based on market capitalization which are domiciled in Europe.
- Purchase an approximately equally weighted portfolio of the 20 highest dividend-yielding
companies.
|
Not FDIC Insured • Not Bank Guaranteed • May Lose Value
|
| Standard Deviations* |
Average Annual Total Returns* |
|
S&P 500 Index |
Strategy |
S&P 500 Index |
Strategy |
| Since 1990 |
14.68% |
17.61% |
10.20% |
11.12% |
| 25 years |
15.29% |
18.07% |
9.55% |
9.19% |
| 20 years |
15.07% |
16.69% |
7.46% |
4.48% |
| 15 years |
15.10% |
16.63% |
9.87% |
5.12% |
| 10 years |
13.53% |
14.64% |
13.86% |
9.22% |
| 5 years |
15.25% |
16.09% |
15.20% |
9.75% |
| 3 years |
18.78% |
19.95% |
14.17% |
7.04% |
| *Through 12/31/20 |
| Annual Total Returns |
| Year |
S&P 500
Index |
Strategy
|
| 1990 |
-3.19% |
0.14% |
| 1991 |
30.33% |
57.09% |
| 1992 |
7.61% |
4.12% |
| 1993 |
10.04% |
22.07% |
| 1994 |
1.30% |
2.07% |
| 1995 |
37.50% |
42.90% |
| 1996 |
22.89% |
38.67% |
| 1997 |
33.31% |
25.81% |
| 1998 |
28.55% |
51.24% |
| 1999 |
21.03% |
48.80% |
| 2000 |
-9.10% |
-4.51% |
| 2001 |
-11.88% |
-11.29% |
| 2002 |
-22.09% |
-21.31% |
| 2003 |
28.65% |
34.75% |
| 2004 |
10.87% |
13.05% |
| 2005 |
4.90% |
6.76% |
| 2006 |
15.76% |
11.86% |
| 2007 |
5.56% |
9.25% |
| 2008 |
-36.99% |
-45.91% |
| 2009 |
26.46% |
12.01% |
| 2010 |
15.08% |
18.29% |
| 2011 |
2.08% |
-2.05% |
| 2012 |
15.98% |
12.24% |
| 2013 |
32.36% |
36.14% |
| 2014 |
13.66% |
6.13% |
| 2015 |
1.38% |
-4.45% |
| 2016 |
11.93% |
8.24% |
| 2017 |
21.80% |
19.91% |
| 2018 |
-4.39% |
-7.56% |
| 2019 |
31.45% |
18.86% |
| 2020 |
18.39% |
11.63% |
| 3/31/21 |
6.17% |
6.37% |
Past performance is no guarantee of future results and the actual current
performance of the portfolio may be lower or higher than the hypothetical performance
of the strategy. Hypothetical returns for the strategy in certain years were
significantly higher than the returns of the S&P 500 Index. Hypothetical strategy
returns were the result of certain market factors and events which may not be
replicated in the future. You can obtain performance information which is current
through the most recent month-end by calling First Trust Portfolios L.P. at
1-800-621-1675 option 2. Investment return and principal value of the portfolio
will fluctuate causing units of the portfolio, when redeemed, to be worth more
or less than their original cost.
Simulated strategy returns are hypothetical, meaning that they do not represent actual trading, and, thus, may not reflect material economic and market factors, such as liquidity constraints, that may have had an impact on actual decision making. The hypothetical performance is the retroactive application of the strategy designed with the full benefit of hindsight. Strategy returns reflect a sales
charge of 1.85% and estimated annual operating expenses of 0.245%, plus organization costs, but not taxes or commissions paid by the portfolio to purchase securities. Strategy returns assume that dividends are reinvested semi-annually while index returns assume dividends are reinvested monthly. Actual portfolio performance will vary from that of investing in the strategy stocks because it may not be invested equally in these stocks and may not be fully invested at all times. It is important to note that the strategy may underperform the index in certain years and may produce negative results.
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.
Standard Deviation is a measure of price variability (risk). A higher degree of variability indicates more volatility and therefore greater risk.
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 stocks in the information technology sector which
involves additional risks, including limited diversification. The companies engaged in the information
technology sector are subject to fierce competition, high research and development costs, and their products
and services may be subject to rapid obsolescence. Technology company stocks, especially those which are
Internet-related, may experience extreme price and volume fluctuations that are often unrelated to their
operating performance.
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.
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.
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.
The Dow Jones Industrial Average and S&P 500 Index are products of S&P Dow Jones Indices LLC or its affiliates ("SPDJI") and have been licensed for use by First Trust Portfolios L.P. Standard & Poor's® and S&P® are
registered trademarks of Standard & Poor's Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by
SPDJI and sublicensed for certain purposes by First Trust Portfolios L.P. The Target VIP Portfolio, which contains The Dow Dart 5® Strategy and the S&P Target 24 Strategy, is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Dow
Jones Industrial Average and the S&P 500 Index.
The Nasdaq 100®, Nasdaq 100 Index®, and Nasdaq® are trade or service marks of Nasdaq, Inc. (which with its affiliates are the Corporations) and are licensed for use by First Trust Portfolios L.P. The portfolio has not been
passed on by the Corporations as to its legality or suitability. The portfolio is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE PORTFOLIO.
“Value Line”, “The Value Line Investment Survey”, and “Timeliness,” are trademarks or registered trademarks of Value Line, Inc. (“Value Line”) and have been licensed for use for certain purposes by First Trust Portfolios L.P.
The Target VIP Portfolio is not sponsored, endorsed, recommended, sold or promoted by Value Line and Value Line makes no representation regarding the advisability of investing in products utilizing such strategy. First
Trust Portfolios L.P. is not affiliated with any Value Line company.