Target Focus Four Portfolio, 1st Quarter 2020 Series
Finding the right mix of investments is a key factor to successful investing. Because
different investments often react differently to economic and market changes, we believe
diversifying among both growth and value stocks, as well as several different sectors offers
investors a better opportunity for investment success regardless of which investment styles
prevail in the market.
The Target Focus Four Portfolio is a unit investment trust which provides you with
the convenience of owning four 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
- Complete transparency from the stock selection process to portfolio holdings
and individual stock weightings;
- Automated buy decisions helping to eliminate unwanted emotions from the
- 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.
As you can see in the adjacent charts, if this strategy had been applied since 1996, investors would have realized higher total returns than by investing in the S&P 500 Index. It is important to note that the past performance of the strategy is hypothetical and it is not indicative of the future performance of the Target Focus Four Portfolio.
Keys to Strategy Investing
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 Focus Four consists of four 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 sectors as well as various market caps, growth and value
styles and countries. Diversification does not guarantee a profit or protect against loss.
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 and three 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.
Studies have shown that rebalancing can provide
benefits to your long-term investment plan. Rebalancing is simple with Target Focus Four.
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 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
Portfolio Selection Process
The Target Focus Four Portfolio seeks to provide the potential for above-average
total return by adhering to a simple investment strategy; however, there is
no assurance the objective will be met. The portfolio is comprised of the four
strategies described below.
The Dow® Target Dividend Strategy -30%
- Begin with the stocks that comprise the Dow Jones Select Dividend IndexSM.
The index consists of 100 widely-traded, dividend-paying stocks derived from
the Dow Jones U.S. Total Market IndexSM.
- Rank each of the 100 stocks on two factors:
- Change in return on assets over the last 12 months. An increase in return on assets is generally used as an indication of improving business fundamentals and would receive a higher ranking than a stock with a negative change in return on assets.
- Price to book. A lower, but positive, price to book ratio is generally used as an indication of value.
- Purchase an approximately equally-weighted portfolio of the 20 stocks with
the best overall ranking on the two factors.
S&P Target SMid 60 Strategy -30%
- Begin with the stocks that comprise the S&P MidCap 400 and the S&P SmallCap
- Rank the stocks in each index by price to book value. Select the best quartile
from each index -100 stocks from the S&P MidCap 400 Index and 150 stocks from
the S&P SmallCap 600 Index with the lowest, but positive, price to book ratio.
- Rank each stock on three factors:
- Price to cash flow
- 12 month change in return on assets
- 3 month price appreciation
- Eliminate any regulated investment companies, limited partnerships, business
development companies, and stocks with a market capitalization of less than
$250 million and with an average daily trading volume of less than $250,000.
- The 30 stocks from each index with the best overall ranking on the three
factors are selected for the portfolio.
- The stocks selected from the S&P MidCap 400 Index are given approximately
twice the weight of the stocks selected from the S&P SmallCap 600 Index.
Value Line® Target 25 Strategy -30%
- 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%.
NYSE® International Target 25 Strategy -10%
- Begin with the stocks that comprise the NYSE International 100 IndexSM.
The index consists of the 100 largest non-U.S. stocks trading on the New York
- Rank each stock on two factors:
- Price to book
- Price to cash flow
- Screen for liquidity by eliminating companies with average daily trading volume below
$300,000 for the prior three months.
- Purchase an approximately equally-weighted portfolio of the 25 eligible
stocks with the best overall ranking on the two factors.
Not FDIC Insured Not Bank Guaranteed May Lose Value
| Standard Deviations*
|| Average Annual Total Returns*
|Annual Total Returns
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 0.185%, 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 500 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 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 financials sector which
involves additional risks, including limited diversification. The companies engaged in the
financials sector are subject to the adverse effects of volatile interest rates, economic recession,
decreases in the availability of capital, increased competition from new entrants in the field, and
potential increased regulation.
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.
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 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
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 Dow Jones U.S. Select Dividend IndexSM, S&P MidCap 400 and S&P SmallCap 600 Indices 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 Focus Four Portfolio, which contains the Dow® Target Dividend Strategy and the
S&P Target SMid 60 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 products nor do they have any liability for any errors, omissions, or interruptions of the
Dow Jones U.S. Select Dividend IndexSM, S&P MidCap 400 and S&P SmallCap 600 Indices.
“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 Focus Four 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.
Source ICE Data Indices, LLC, is used with permission. “NYSE®” is a service/trade mark of ICE Data Indices, LLC or its affiliates and has been licensed, along with the NYSE® International 100 Index (“Index”) for use by First Trust
Portfolios L.P. in connection with the Target Triad Portfolio (the “Product”). Neither First Trust Portfolios L.P. nor the Product, as applicable, is sponsored, endorsed, sold or promoted by ICE Data Indices, LLC, its affiliates or its Third
Party Suppliers (“ICE Data and its Suppliers”). ICE Data and its Suppliers make no representations or warranties regarding the advisability of investing in securities generally, in the Product particularly, or the ability of the Index to
track general market performance. Past performance of an Index is not an indicator of or a guarantee of future results.
ICE DATA AND ITS SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE,
INCLUDING THE INDICES, INDEX DATA AND ANY INFORMATION INCLUDED IN, RELATED TO, OR DERIVED THEREFROM (“INDEX DATA”). ICE DATA AND ITS SUPPLIERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT
TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES AND THE INDEX DATA, WHICH ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK.