Richard Bernstein Advisors Global Dividend Kings®, Series 25
The Dividend Attraction
Investors today are challenged to find attractive sources of income for their portfolios. This
reality, coupled with the closing of the gap between dividend and U.S. government bond
yields, (see Chart 1) has prompted many investors to consider the potential benefits of taking a
yield approach to equity investing. For investors who were intimidated by events during the
global financial crisis, the simplicity and transparency of an approach that has the potential to
provide both income and capital appreciation may be attractive.
A Key Component of Total Return
Historically, dividends have made up a significant portion of stock market total return. According
to Ibbotson Associates, dividends have provided approximately 42% of the 10.04% average
annual total return on the S&P 500 Index from January 1926 through December 2016. In
addition, from 2000-2016, dividend-payers outperformed the non-payers in 11 of those 17 years.
The number of people aged 65 or older is projected to grow from an estimated 524 million in
2010 to nearly 1.5 billion in 2050, with most of the increase in developing countries.1 With more
investors spending more years in retirement, we believe demand for dividend income will
increase. Two-thirds of all investable assets will soon be controlled by older households concerned
with income and wealth preservation.2
A Global Approach to Dividends
Diversification is one of the principal advantages of global investing. Because global markets often
follow different cycles than the U.S. markets, investing globally may provide gains when domestic
markets are flat or declining. Consider that in 13 of the 30 calendar years from 1986 to 2015, the
MSCI World ex USA index outperformed the S&P 500 Index. It is important to note that
diversification does not guarantee a profit or protect against loss.
By investing a portion of your portfolio outside the U.S., you may significantly expand your
investment choices and participate in the long-term growth potential of foreign companies.
The International Monetary Fund, in its October 2017 release, forecasts a global growth rate of
3.6% for 2017 and 3.7% for 2018. Its estimate for the U.S. is 2.2% for 2017 and 2.3% for 2018.
In addition, dividend yields have typically been higher overseas, as shown in Chart 2. It is
important to note that there can be no assurance that companies will declare dividends in the
future or that, if declared, they will remain at current levels or increase over time.
1 World Health Organization
Reasons to Consider Dividend-Paying Stocks:
- Interest rates remain low
- Key component of total return
- Global demographics and diversification
The Richard Bernstein Advisors Global Dividend Kings® Portfolio is a unit investment trust (UIT) focused on total return through a combination of dividend income and capital appreciation. The stocks are selected for the trust by Richard Bernstein Advisors (RBA) using a comprehensive process and held for approximately two years. A UIT is an investment vehicle which consists of a professionally selected unmanaged portfolio of securities which are held for a predetermined period of time. The value of the units of the trust will fluctuate each day with the value of the underlying securities; therefore it is possible to lose money by investing in the trust. There can be no assurance that the trust objectives will be achieved. In addition, there is no guarantee that the issuers of the securities included in the portfolio will declare dividends in the future or that, if declared, they will either remain at current levels or increase over time.
RBA Portfolio Selection Process
RBA's’s quantitative techniques seek income in a risk-controlled process. This process seeks to gain yield while
seeking to eliminate the highest-yielding stocks, which tend to be the most susceptible to dividend cuts.
This helps to reduce the risk of the portfolio and may protect the yield.
A Disciplined Approach To Yield
RBA starts with the companies listed on the MSCI ACWI index. This index captures large
and mid-cap representation across 23 developed and 24 emerging market countries. The
index covers approximately 85% of the global investable equity market.
From this universe, RBA then screens for companies that have increased their trailing 12-
month dividend each year for the previous 5 years. Sspecial dividends are not included.
The highest yielding stocks are removed, as they tend to be most susceptible to dividend
cuts. This screening process generally results in 200 to 500 stocks.
RBA then uses a proprietary optimization method to weight the stocks. This final step
attempts to reduce the volatility of the overall portfolio, while maximizing the yield.
Thus, the strategy attempts to reduce risk in two ways: First, RBA screens for consistent
dividend growth. second, RBA uses a proprietary weighting method which strives to
reduce overall portfolio volatility. From the initial universe of over two thousand, the
resulting optimally weighted portfolio consists of less than 100 names. The trust will
invest in U.S. listed securities of domestic and foreign companies, American Depository
Receipts (ADRs) or Global Depository Recepits (GDRs) of foreign companies, and foreign
|Richard Bernstein Advisors, LLC|
|RBA is a registered investment adviser focusing on longer term investment strategies that combine top-down, macroeconomic analysis and quantitatively-driven portfolio construction, utilizing Mr. Bernstein's widely recognized expertise in style investing and asset allocation.|
|The firm's Chief executive and Chief investment officer, Mr. Bernstein has over 35 years' experience on Wall street, including most
recently as the Chief Iinvestment Strategist at Merrill Llynch & Co. RBA acts as sub-advisor for mutual funds and also
selects portfolios for income-oriented Unit Investment Trusts sponsored by First Trust Portfolios L.P. Additionally, RBA runs exchange-traded fund
asset allocation portfolios and in separately managed accounts and is the index provider for two exchange-traded funds. RBA has
approximately $6.0 billion in assets under advisement as of November 30, 2017.
| 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, 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.
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. Risks associated with investing in
foreign securities may be more pronounced in emerging
markets where the securities markets are substantially smaller,
less developed, less liquid, less regulated, and more volatile than
the U.S. and developed foreign markets.
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.
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.
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.