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Bloomberg Pricing Power 25, Series 1

In 2021, the year-over-year inflation rate increased to the highest level in four decades and still remains above the 2% target rate set by the Federal Reserve. Rising costs can erode a company’s profit margins and, ultimately, investor returns. Pricing power, or a company’s ability to raise prices and maintain profit margins amidst increasing costs or competition, is one of the most important measurements for evaluating the value of a business and has become top of mind for investors. Companies with strong pricing power are typically viewed favorably by investors as they are more inclined to be better positioned to maintain or increase their profit margins, even in challenging economic conditions.

The Bloomberg Pricing Power 25 Portfolio is a unit investment trust (UIT) that seeks to identify companies that we believe are well positioned to maintain stable profit margins.

Portfolio Selection Process

Through our selection process, we seek to find the stocks that we believe have the best prospects for above-average capital appreciation.

Identify the Universe | The first step in the selection process is to identify the universe of stocks from which the portfolio is selected. We begin with the companies listed in the Bloomberg Pricing Power Index (BPPUS Index). This index is constructed to track the performance of companies that have historically maintained stable profit margins. The index focuses on companies that have the smallest deviations of trailing annual gross profit margins over the last five years. To be selected for the index, a security must be a member of the Bloomberg US large and mid-cap universe.

Examine Financial Results | The next step is to rank companies on free cash flow (FCF) yield. FCF represents the money that is left over after a company pays its operating expenses. FCF yield is a financial solvency ratio that is used to measure free cash flow in relation to market capitalization.

Select the Portfolio | The final step is to select an approximately equally weighted portfolio of 25 stocks with the best overall rankings. The final selections are subject to a maximum 15% sector overweight relative to the S&P 500 Index.

PORTFOLIO SELECTION PROCESS Chart


Portfolio Objective

This unit investment trust seeks above-average capital appreciation; however, there is no assurance the objective will be met.

Reasons To Invest In Companies With Free Cash Flow

Financial Stability | Companies that maintain positive cash flow tend to be financially stable and are able to provide liquidity to cover expenses, repay debts and fund daily operations.

Growth Opportunities | Positive cash flow allows companies to invest in growth opportunities such as launching a new product or expanding operations.

Creditworthiness | Cash flow establishes creditworthiness and borrowing capacity with the ability to generate sufficient funds to repay debts. In turn, this potentially increases the likelihood of obtaining favorable borrowing terms when additional capital is needed.

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.

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.

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.

Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East, have caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, the Middle East 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
30334X101 (Cash)
30334X119 (Reinvest)
30334X127 (Cash-Fee)
30334X135 (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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