Global Commodities Opportunity Portfolio, Series 47
Commodities are a unique asset class that respond differently than traditional asset classes to
changing economic conditions. They offer potential for attractive returns, reduced risk through
diversification, and a hedge against rising inflation. The global commodity sector is made up of
several separate markets including agriculture, metals and energy. These commodities are the
building blocks of every economy in the world.
- In every decade going back to 1960, with the exception of the 2010s, commodities have appreciated by at least 60% or more. Commodity prices hit multi-decade lows in April of 2020, dropping to levels
last seen in the late nineties. However, commodities have seen a turnaround posting a total return of 42.96% from 2020 through 2022.1 Of course, past performance is no guarantee of future results.
- Commodities may offer a degree of protection from the effects of inflation because
commodities prices usually rise when inflation is rising. As demand for goods and services
increases, the price of goods and services usually increases as well as the price of the raw
materials (commodities) used to produce those goods and services. Historically, bonds are
negatively correlated to inflation and equities have close to zero correlation. Commodities,
however, have exhibited a higher positive correlation with inflation.
Opportunity For Meaningful Diversification*
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 commodities can be used as
an effective means to aid portfolio diversification because of their historically low correlation to
investment-grade corporate bonds and equities.2 Because commodities 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.
This unit investment trust seeks above-average capital appreciation by investing in the common
stocks of domestic and foreign companies in the commodities sector; however, there is no
assurance the objective will be met.
Portfolio Selection Process
An initial universe of stocks is created by identifying companies with exposure to global
commodities through participation in the agriculture, energy or materials sector. Only U.S.-listed
common stocks and ADRs that have adequate liquidity for investment are eligible for selection.
Next we examine the historical financial results of the stocks from the initial universe. The stocks
are then evaluated using fundamental factors such as sales, earnings and cash flow growth;
valuation factors such as price/earnings, price/cash flow, price/sales and price/book; and
technical factors such as price momentum and earnings surprises.
An estimated value is calculated for each of the companies utilizing a Cash Flow Return on
Investment (CFROI) method. A secondary valuation is also made employing a concept called
Economic Margin. The companies which currently trade at an attractive market price relative to
their estimated value are favored over companies that do not.
The final portfolio is then selected by a team of equity analysts who evaluate each stock by
examining the stock’s relative valuation and other qualitative factors such (third party) analyst
ratings, competitive advantages and quality of management.
Our selection process attempts to find the stocks with the best prospects for above-average
capital appreciation by identifying those that meet our investment objectives, trade at attractive
valuations, and, in our opinion, are likely to exceed market expectations of future cash flows.
The final portfolio is comprised of 30 equally weighted global commodities stocks.
|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 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 an investment that is concentrated in stocks of commodities companies in both the
energy and materials sectors which involves additional risks, including limited diversification. The companies
engaged in the energy sector are subject to certain risks, including price and supply fluctuations caused
by international politics, energy conservation, taxes, price controls, and other regulatory policies of various
governments. Falling oil and gas prices may negatively impact the profitability and business prospects of
certain energy companies. The companies engaged in the materials sector, including companies within the
precious metals industry, are subject to 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. 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.
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.
An investment in a portfolio containing mid-cap companies is subject to additional risks, as the share prices
of 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
Large capitalization companies may grow at a slower rate than the overall market.
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.
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 and the ensuing policies enacted by governments and central banks have
caused and may continue to cause significant volatility and uncertainty in global financial markets. While
the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown
measures. Additionally, there is no guarantee that vaccines will be effective against emerging variants of
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.