Richard Bernstein Advisors Quality Income Portfolio, Series 36
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. additionally, 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 42% of the
9.99% average annual total return on the S&P 500 index, from 1926 through 2018. the S&P
500 index includes 500 leading companies and is often used to measure large-cap u.S. stock
- S&P Dow Jones indices announced that total dividend distributions for U.S. common stocks
increased by a net (increases less decreases) $14.6 billion in Q3 ’19, according to its own release.
In addition, for the 12-month period ended 9/30/19, net dividend increases totaled $42.2 billion.
The Quality Income Approach
The Richard Bernstein Advisors Quality Income Portfolio is a unit investment trust (UIT) focused on
total return through a combination of dividend income and capital appreciation. 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.
The stocks are selected for the trust by Richard Bernstein Advisors LLC (RBA) using their
comprehensive Quality Income strategy and held for approximately 15 months. This strategy
attempts to control the risks associated with investing in higher-yielding stocks, yet maintain
attractive current income. RBA believes risk actually increases as dividend yield increases, and that
simply investing in high-yield equities often leads to selecting stocks whose dividends are
subsequently cut or discontinued. RBA’s strategy incorporates several layers of risk control in order
to attempt to minimize the probability of dividend cuts and the related underperformance.
RBA Portfolio Selection Process
The stock market is often far ahead of investors in predicting dividend cuts or omissions. Many stocks that offer extremely high dividend yields get there not by increasing their dividends, but by
virtue of their stock price dropping significantly, thus dramatically increasing their yield. In addition, there is typically a sound business reason for a stock to tumble and it usually involves business
problems for the company. In such circumstances, it is reasonable to expect a competent board of directors to cut dividends to conserve cash.
Because of this effect, RBA believes stocks with extremely high dividend yields should be viewed cautiously, because high dividend yields may simply reflect depressed stock prices in anticipation of
dividend cuts or omissions. RBA examines the security of dividends on the global high dividend yield universe by screening for debt levels and for consistency of earnings. This process generally
results in an unweighted portfolio of less than 100 stocks from the initial universe of several thousand.
RBA then uses a proprietary optimization method to weight the stocks. This final step attempts to reduce the volatility of the overall portfolio. Thus, the strategy attempts to reduce risk in two ways.
First, RBA screens for estimated dividend consistency. Second, RBA uses a proprietary weighting method which strives to reduce overall portfolio volatility. Of course, there can be no assurance that
these 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.
|Richard Bernstein Advisors|
|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 38 years’ experience on Wall Street, including most recently
as the Chief Investment Strategist at Merrill Lynch & 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, RBAa runs exchange-traded fund asset
allocation portfolios and separately managed accounts and is the index provider for two exchange-traded funds. RBA has
approximately $9.0 billion in assets under management/under advisement as of September 30, 2019.
| Not FDIC Insured Not Bank Guaranteed May Lose Value
You should carefully consider the portfolio investment objective, risks,
and charges and expenses 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.
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 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.
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.
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 portfolio 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.
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.