Interest Rate Hedge and ETF Portfolio, Series 27
Like stock returns, economic
growth, inflation and interest rates are some variables that you can't control. But, as an investor,
you can control how your investment dollars are allocated.
The Interest Rate Hedge and ETF Portfolio is a professionally selected unit investment trust which
invests in common stocks of companies that have a history of dividend growth, as well as
exchange-traded funds (ETFs) which invest in convertible securities, Treasury Inflation Protected
Securities (TIPS), master limited partnerships (MLPs), limited duration bonds and real estate
investment trusts (REITs).
This unit investment trust seeks above-average total return; however, there is no assurance the objective will be met.
- According to Ibbotson Associates, dividends have provided approximately 41% of the 10.20%
average annual total return on the S&P 500 Index from 1926 through 2019. 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. For the Interest Rate
Hedge and ETF Portfolio, we seek to include high quality dividend paying companies with the
capacity to increase their dividends over time.
- Convertible securities are bonds, preferred stocks, or other securities issued by a corporation which are convertible into common stock at a specified ratio. Because of this, convertible securities have some characteristics of both common stocks and bonds. Like stocks, convertible securities offer capital appreciation potential. Additionally, the hybrid nature of convertible securities makes them tend to be less sensitive to interest rate changes than bonds of comparable quality and maturity.
- MLPs are limited partnerships that are publicly traded on a U.S. securities exchange, which combine the tradeability of common stocks with the corporate structure of a limited partnership. MLPs are traditionally high cash flow businesses that pay out a majority of that cash to investors. Investing in MLPs through ETFs provides an efficient alternative to investing directly in MLPs. Unlike individual partnership investments, an ETF provides one Form 1099 per shareholder at the end of the year, rather than multiple K-1s and potential state filings.
- TIPS are bonds issued by the U.S. government that are designed to provide inflation protection to investors. With TIPS, the coupon payments and principal value are adjusted according to inflation over the life of the bonds.
- Real estate has traditionally been a good hedge against higher inflation. An improving economy tends to lead to better occupancy rates in commercial buildings and malls which often results in dividend increases among REITs.
- Limited duration bonds provide investors with high income but with less interest rate sensitivity than longer duration bonds. The duration of a bond is a measure of its price sensitivity to interest rate movements based on the weighted average term to maturity of its interest and principal cash flows. Historically, ETFs that invest in limited duration bonds have tended to hold up better in rising interest rate environments than ETFs which invest in longer duration bonds.
Past performance is no guarantee of future results.
|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
professional 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 an investment in a portfolio of common stocks and exchangetraded
ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective, and to manage the fund’s portfolio when the underlying securities are redeemed or sold, during periods of market
turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. Unlike open-end funds, which trade at prices based on a current determination of the fund’s net asset value, ETFs frequently trade
at a discount from their net asset value in the secondary market.
Common stocks are subject to certain risks, 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.
Certain of the ETFs invest in convertible securities. Convertible securities are bonds, preferred stocks and other securities that pay a fixed rate of interest (or dividends) and will repay principal at a fixed date in the future.
However, these securities may be converted into a specific number of common stocks at a specified time. As such, an investment in convertible securities entails some of the risks associated with both common stocks and bonds.
Certain of the ETFs invest in investment grade securities. Investment grade securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the investment grade bond market or
investors’ perception thereof, possible downgrades and defaults of interest and/or principal.
Certain of the ETFs invest in limited duration bonds. Limited
duration bonds are subject to interest rate risk, which is the risk that the value of a security will fall if interest
rates increase. While limited duration bonds are generally subject to less interest rate sensitivity than longer
duration bonds, there can be no assurance that interest rates will not rise during the life of the trust.
Certain of the ETFs invest in MLPs. Investments in MLPs are subject to the risks generally applicable to
companies in the energy and natural resources sectors, including commodity pricing risk, supply and
demand risk, depletion risk and exploration risk. U.S. taxing authorities could challenge the trust’s treatment
of the MLPs for federal income tax purposes. These tax risks could have a negative impact on the after-tax
income available for distribution by the MLPs and/or the value of the trust’s investments.
Certain of the ETFs invest in 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.
Certain of the ETFs invest in TIPS which are subject to numerous risks including changes in interest rates,
economic recession and deterioration of the bond market or investors’ perception thereof.
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.
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.
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
This unit investment trust is not an absolute return investment vehicle.
It is important to note that an investment can be made in the underlying funds directly rather
than through the trust. These direct investments can be made without paying the trust’s sales
charge, operating expenses and organizational costs.
For a discussion of additional risks of investing in the Trust see the “Risk Factors” section of