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Richard Bernstein Tactical Series, American Industrial Renaissance®, 2020-1

For many decades, American companies sent their manufacturing work overseas. However, in a trend known as “reshoring,” many companies have brought and many are continuing to bring their manufacturing back to the U.S. Some potential advantages companies have by reshoring include: higher product quality, shorter delivery times, rising offshore wages, lower inventory, and the ability to be more responsive to the change in customer demands. In 2018, the U.S. manufacturing industry added approximately $2.32 trillion to GDP.1

Over the years, the U.S. had become reliant on off-shore supplies for their basic needs. However, because of this, the U.S. was not prepared with necessary items the country needed during the COVID-19 pandemic. This, in turn, might provide the incentive needed to bring back manufacturing segments which are considered critical for national resilience and sustainability.

According to a report by the World Economic Forum, the U.S. remains an innovation powerhouse, ranking first on the business dynamism pillar, second on innovation capability, and first for finding skilled employees. As you can see in the adjacent chart, and for the seventh year in a row, business leaders around the world have chosen the U.S. as the number one place to invest.2

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Richard Bernstein Advisors believes the following factors point to the U.S. gaining industrial market share

Wages and Productivity

The U.S. manufacturing sector has benefited from a talented workforce, advanced technology, and pro-business policies. Although labor costs in the U.S. are significantly higher than other countries, the productivity levels found in the U.S. make up for this difference and have made the U.S. an attractive location for manufacturing investment. Disruptive technologies such as additive manufacturing, 3D-printing, advanced robotics, and the utilization of the Internet of Things and Big Data are revolutionizing the U.S. manufacturing sector. This advancement in technology has not only increased levels of productivity in the U.S., but has also made the U.S. one of the most attractive locations for high technology manufacturing firms.3

Quality Control, Transportation Costs and Decreased Time to Market

Some companies that have already begun to reshore have cited the benefits in having designers, engineers and sales people at the same facility rather than oceans apart.4 The cost of shipping parts around the world and the associated time to market can create hidden costs that may negatively impact both profit margins and market share.

1 Statista
2, 4 A.T. Kearney
3 Brookings

Energy costs

Natural gas had long been the second-most prevalent fuel for electricity generation behind coal. According to the U.S. Energy Information Administration, natural gas-fired generation first surpassed coal generation on a monthly basis in April 2015. In 2019, natural gas had the largest percentage contribution to electricity generation at 38.4%, coal contributed 23.5% and nuclear rounded out the top 3 at 19.7%.

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The Potential Advantage for Small Banks

Richard Bernstein Advisors (RBA) believes large U.S. banks have strayed from traditional lending sources of income, for example, investing in corporate bonds rather than making corporate loans.

RBA believes this provides a growth opportunity for smaller U.S. banks as they continue to aid U.S. capital formation. Admittedly, traditional banking typically has lower profitability ratios, but smaller U.S. banks do not need massive trading infrastructures and unnecessary global risk-taking to be profitable. Manufacturing is a capital-intensive business that requires equipment, tooling and raw materials. RBA believes manufacturers will turn to smaller banks for the financing required to hire more workers, buy new equipment and aggressively market themselves.

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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.

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 industrials sector making it subject to additional risks, including limited diversification. The companies engaged in the industrials sector are subject to certain risks, including a deterioration in the general state of the economy, intense competition, domestic and international politics, excess capacity and changing spending trends.

The trust also invests in companies in the financials sector. 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 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.

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 recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December 2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or 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.

 
Fund Cusip Information
30314H548 (Cash)
30314H555 (Reinvest)
30314H563 (Cash-Fee)
30314H571 (Reinvest-Fee)
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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