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Key 3 Portfolio, Series 24

The Key 3 Portfolio invests in three sectors that are a few of the main principal drivers behind the U.S. economy—communication services, health care, and information technology. In fact, as of 7/31/2023, they represent approximately 49.9% of the S&P 500 Index based on market capitalization. The S&P 500 Index is an unmanaged index of 500 companies widely used to measure large-cap U.S. stock market performance.

Communication Services

The convergence of technology and entertainment has brought about a more modern, updated approach to the everchanging technology landscape and acknowledges changing consumer habits and companies influencing the changes. With the changes, a new growth element has been introduced to what has traditionally been viewed as a more value-oriented sector.

The gap between traditional media and digital media consumption continues to widen as people devote less time to analog formats (television, radio, or print) and more time to digital formats (mobile, computers, and other connected devices). It is estimated that, in 2025, adults in the U.S. will spend an average of seven hours and 58 minutes per day on digital media, nearly 65% of all daily media. Less than ten years ago, the ratio was the reverse.1

Health Care

The health care industry has been responsible for several discoveries that have led to new drugs and products designed to better serve the masses, especially the aging population. These discoveries have improved the quality of life and the life expectancy of millions. More recent research, relating to areas such as genomics, is providing avenues of growth never before imagined. Debilitating diseases, previously untreatable, are now often manageable or even curable. From 2022-2031, it is projected that health care spending will grow at an average rate of 5.4% annually.2

Currently, there are more than 8,000 medicines in development around the world. Of these, nearly 70% have the potential to be first-in-class treatments, which represents an entirely new approach to treating a disease.3

Information Technology

From cell phones to MRIs, innumerable products and services, as well as the people that use them each day, rely in some way on technology. Powering this technology in our everyday lives are computer, software, networking, semiconductor and communication companies. Gartner forecasts worldwide IT spending to total nearly $4.7 trillion in 2023, and grow by 8.8% to an anticipated $5.1 trillion in 2024. In addition, global end-user spending on public cloud services is anticipated to grow by 21.7% from 2022 to reach approximately $597.3 billion in 2023 and increase to $724.6 billion in 2024.

Portfolio Selection Process

We begin with the Russell 3000 Index to create an initial universe of stocks with a market-cap above $10 billion that are in these three sectors. 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 as competitive advantages, new products 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 Key 3 stocks - 10 stocks in communication services, 10 stocks in health care and 10 stocks in information technology.

Portfolio Objective

The portfolio's objective is to provide investors the potential for above-average capital appreciation; however, there is no assurance the objective will be met.

1 emarketer
2 CMS.gov
3 PhRMA

The Russell 3000 Index is an unmanaged index used to measure the performance of the largest 3000 U.S. stocks based on total market capitalization. The index cannot be purchased directly by investors.


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.

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 communication services, health care and information technology sectors which involves additional risks, including limited diversification. The companies engaged in the communication services sector are subject to rapidly changing technology, rapid product obsolescence, loss of patent protection, cyclical market patterns, governmental regulation, evolving industry standards and frequent new product introductions. Certain companies may be particularly susceptible to cybersecurity threats, which could have an adverse effect on their business. The companies engaged in the health care sector are subject to fierce competition, high research and development costs, governmental regulations, loss of patent protection, and changing consumer spending trends. In addition, health crises, such as a pandemic outbreak, can severely impact the health care industry in particular. The companies engaged in the information technology sector are subject to fierce competition, high research and development costs, and their products and services may be subject to rapid obsolescence. Technology company stocks, especially those which are Internet-related, may experience extreme price and volume fluctuations that are often unrelated to their operating performance.

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 available information.

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 ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future 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.

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.

 

CUSIP identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by FactSet Research Systems Inc. and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, ©2024 CUSIP Global Services. "CUSIP" is a registered trademark of the American Bankers Association.

Fund Cusip Information
30332H728 (Cash)
30332H736 (Reinvest)
30332H744 (Cash-Fee)
30332H751 (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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