Diversified Equity Strategic Allocation Portfolio, 1st Quarter 2018 Series
The Diversified Equity Strategic Allocation Portfolio is a unit investment trust which is designed
to provide broad equity diversification by investing in common stocks across various market
capitalizations, growth and value styles, sectors and countries. The trust 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 trust seeks above-average total return;
however, there is no assurance the objective will be met.
A Tactical Approach To Security Selection
When selecting stocks for the portfolio we apply a proprietary rules-based selection process
which analyzes stocks to assess valuations based on multiple factors. Our goal is to identify
stocks which exhibit the fundamental characteristics that enable them to provide the greatest
potential for capital appreciation.
1. Identify The Universe Of Eligible Stocks
The first step in our selection process is to establish a universe of stocks from which the
portfolio will be selected. The universe is divided into seven distinct styles consisting of six
domestic equity asset classes and one international equity asset class.
The domestic universe is established by identifying the 3,000 largest U.S. stocks (excluding
limited partnerships, royalty trusts, regulated investment companies and business
development companies) and then separating them into large-cap (largest 10%), mid-cap
(next 20%), and small-cap (remaining 70%). The stocks in each group are then divided
evenly between growth and value by their price-to-book ratios to establish the universe of
stocks eligible for selection from within each asset class. In the case of the small-cap
universe, only the 250 largest stocks with a minimum average daily trading volume of
$1,000,000 within each growth and value group are included to ensure sufficient liquidity.
The international universe consists of the 100 largest companies from developed nations
which are ADRs or directly listed in the United States.
2. Apply The Rules-Based Stock Selection Models
We then rank the stocks within each of the seven universes based on two multi-factor
models. Half of a stock’s ranking is based on a risk model and the remaining half is based on
a model which is determined by their style designation. Value and international stocks are
ranked on one model while growth stocks are ranked using a separate model.
3. Select The Highest Scoring Stocks
The 30 stocks with the best overall ranking from each of the seven style classes are selected
for the portfolio, subject to a maximum of six stocks from any one of the major market
sectors. The financials and real estate sectors are combined for the sector limit purpose. The
seven style classes are approximately weighted based on the allocation shown below. Stocks
are approximately equally weighted within their style.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
||Average Annual Total Returns*
||S&P 1500 Index
||S&P 1500 Index
|Annual Total Returns
||S&P 1500 Index
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 1500. 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 0.185%, 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 S&P 1500 Index in certain years and may produce negative results.
The S&P 1500 Index is an unmanaged index of 1500 stocks representing the large
cap, mid cap and small cap segments of the U.S. equity market.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 objective, 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, 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 consumer products sector which involves additional
risks, including limited diversification. The companies engaged
in the consumer products industry are subject to global
competition, changing government regulations and trade
policies, currency fluctuations, and the financial and political
risks inherent in producing products for foreign markets.
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.
An investment in foreign securities should be made with an understanding of the additional risks involved with foreign issuers, such as currency and interest rate fluctuations, nationalization or other adverse political or economic developments, lack of liquidity of certain foreign markets, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.
Certain of the securities in the portfolio are issued by Real Estate Investment Trusts (REITs). Companies involved in the real estate industry are subject to changes in
the real estate market, vacancy rates and competition, volatile interest rates and economic recession.
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 unit investment trust 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.