Precious Metals Select Portfolio, Series 54
The world of precious metals is a rapidly changing, dynamic market that can be affected by a multitude of domestic and geopolitical forces. Mining technology, supply and demand factors, and inflation
all combine to impact how the precious metals market will ultimately move. Furthermore, the various components of the precious metals market can all react differently to the numerous political and
economic events that unfold and develop with increasing regularity.
Why Precious Metals?
Despite the complexity and diversity of elements that can interact, many investment professionals
recommend including precious metals as part of a properly diversified portfolio in an attempt to
provide potential capital appreciation, liquidity, and as a hedge against conventional assets. The
Precious Metals Select Portfolio is a professionally-selected unit investment trust that invests in
common stocks of metals and mining companies and exchange-traded products (ETPs) which
hold physical gold, silver and other precious metals. For many investors, exposure to precious
metals may offer one way to reduce the overall risk in a properly diversified portfolio.
Diversification has long been recognized as a helpful way to mitigate volatility. Effective diversification
requires combining assets with low correlations—that is, those that have performed differently over
varying market conditions. We believe precious metals can be used as an effective means to aid portfolio
diversification because of their historically low correlation to investment-grade corporate bonds and
equities.1 Because precious metals are not highly correlated with traditional asset classes, they can
potentially decrease portfolio volatility, enhance overall return and provide meaningful diversification to
an asset allocation strategy. It is important to note that diversification does not guarantee a profit or
protect against loss.
1 Correlation measures the similarity of performance of two assets. Correlation is measured on a scale ranging between
-1 and +1. +1 means that the two investments have moved in perfect tandem with each other. Alternatively, -1 means
that when one security moves in one direction, the other security will move in the opposite direction.
A Potential Inflation Hedge
Federal deficit concerns, questions regarding global economic growth, worldwide geopolitical
issues, and trade tension between the U.S. and China, have contributed to an increase in the
demand for precious metals assets. This may encourage investors to continue to shift assets into
commodities such as gold and other precious metals, which are historically known for holding
value during times of rising inflation. Investing in precious metals themselves is not the only
way to hedge against rising inflation. Mining companies also tend to benefit as their earnings
could potentially improve if the price of gold and other precious metals rises. Such hedging may
also be accomplished by investment in ETPs which themselves invest in commodities such as
gold and silver.
This unit investment trust seeks above-average
capital appreciation; however, there is no
assurance the objective will be met.
|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 ETPs.
ETPs 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 ETPs
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, ETPs 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.
You should be aware that an investment that is concentrated in
stocks of precious metals companies in the materials sector involves
additional risks, including limited diversification. Companies in the
precious metals industry are subject to risks associated with the
exploration, development, and production of precious metals including
competition for land, difficulties in obtaining required governmental
approval to mine land, inability to raise adequate capital, increases
in production costs and political unrest in nations where sources of
precious metals are located. In addition, the price of gold and other
precious metals is subject to wide fluctuations and may be influenced
by limited markets, fabricator demand, expected inflation, return on
assets, central bank demand and availability of substitutes.
Companies involved in metals and mining can be significantly
affected by events relating to international political and economic
developments, energy conservation, the success of exploration
projects, commodity prices, and tax and other government regulations.
Investments in these companies may be speculative and may be
subject to greater price volatility than investments in other types of
companies. Risks of investing in these companies may include: changes
in international monetary policies or economic and political conditions
that can affect the supply of precious metals and consequently the
value of metals and mining company investments; the U.S. or foreign
governments may pass laws or regulations limiting metals investments
for strategic or other policy reasons; and increased environmental or
labor costs may depress the value of metals and mining investments.
Commodity prices are subject to several factors including, price and
supply fluctuations, excess capacity, economic recession, domestic and
international politics, government regulations, volatile interest rates,
consumer spending trends and overall capital spending levels.
Certain funds held by the trust rely on custodians for the safekeeping
of commodities. Failure by a custodian to safekeep the commodities
could result in a loss to a fund. In addition, a custodian may not carry
adequate insurance to cover claims against it which could adversely
affect the value of a fund’s assets, and in turn the value of the trust.
Because the portfolio is concentrated in companies headquartered, or
with a significant presence, in Canada, the portfolio may present more
risks than a portfolio which is broadly diversified over several regions.
Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks,
withholding, the lack of adequate financial information, and exchange control restrictions impacting non-U.S. issuers. Risks associated with investing in non-U.S. 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 non-U.S. markets.
Approximately one year after the United Kingdom officially departed the European Union (commonly
referred to as “Brexit”), the United Kingdom and the European Union reached a trade agreement that became
effective on December 31, 2020. It is not currently possible to determine the extent of the impact the Brexit
trade agreement may have on the portfolio’s investments and this uncertainty could negatively impact
current and future economic conditions in the United Kingdom and other countries, which could negatively
impact the value of the portfolio’s investments.
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
In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.
The COVID-19 global pandemic has caused significant volatility and declines in global financial markets,
causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed
for the resumption of “reasonably” normal business activity in the United States, although many countries
continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective
against emerging variants of the disease.
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.
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.
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.
For a discussion of additional risks of investing in the trust see
the “Risk Factors” section of the prospectus.