The Core Four 60/40 Retirement Portfolio, Series 5 ("Trust") seeks current income as the primary objective, with the potential for capital appreciation as a secondary objective.
Past performance is no guarantee of future results. Investment returns and principal value will fluctuate with changes in market conditions. Investors' units, when redeemed, may be worth more or less than their original cost.
This information does not constitute an offer to sell or a solicitation of any offer to buy: nor shall there be any sale of these securities in any state where the offer, solicitation, or sale is not permitted.
Principal Investment Strategy
The Trust seeks to provide current income with the potential for capital appreciation by investing in dividend-paying stocks of U.S.-listed companies along with shares of exchange-traded funds (“ETFs”) that invest substantially all of their assets in fixed-income securities.
The Trust seeks to provide current income with the potential for capital appreciation by investing in dividend-paying stocks of U.S.-listed companies along with shares of exchange-traded funds (“ETFs”) that invest substantially all of their assets in fixed-income securities. The Trust is comprised of four sleeves, each with a unique strategy to address the needs or concerns of individuals near or in retirement: i) income, ii) growth of income, iii) stability of principal, and iv) capital appreciation. As of the security selection date, the Trust portfolio is constructed with an asset allocation of 60% equity securities and 40% ETFs substantially invested in fixed income securities.
The Sponsor has selected the securities to be included in the Trust’s portfolio. The U.S.-listed common stocks held by the Trust may include the common stocks of U.S. and non-U.S. companies of small-, mid- or large-capitalizations. Such securities may be issued by companies located in emerging markets. Certain of the common stocks included in the Trust portfolio are issued by real estate investment Trusts (“REITs”).
The fixed-income ETFs included in the portfolio invest in a wide range of debt securities rated investment-grade through below investment-grade. High-yield, below investment-grade securities or “junk” bonds are considered to be speculative and are subject to greater market and credit risks than investment-grade securities. Additionally, the fixed-income ETFs may invest in debt securities with any maturity term. The fixed-income ETFs included in the portfolio may also invest in debt securities issued by foreign companies, including companies located in emerging markets.
Higher-Yielding Income Sleeve
Approximately 30% of the Trust portfolio will constitute securities that seek to deliver an above average income stream. The Sponsor will select higher dividend-yielding, U.S.-listed equity securities (approximately 20% of the Trust portfolio) and higher yielding fixed income asset classes accessed through ETFs (approximately 10% of the Trust portfolio).
Equity Income Security Selection:
1. Initial Universe: Start with all companies listed in the Dow Jones Top Cap Value Index, which is a combination of the Dow Jones U.S. Large-Cap Value Total Stock Market Index and the Dow Jones U.S. Mid- Cap Value Total Stock Market Index.
2. Defined Sub-Universe: Reduce the initial universe of securities to a sub-universe that meets the following requirements:
• Exclude companies with an indicated dividend-yield of zero.
• Exclude 20% of the remaining companies with the lowest indicated dividend-yield.
• Using the entire initial universe, exclude the 20% of companies with the highest standard deviation of daily returns for the trailing year, as provided by FactSet Research Systems Inc.
3. Selection: From the sub-universe, apply the following factors:
• Select the 100 companies with the highest Santa Monica Quantitative (SMQ) Alpha Score, which is a proprietary value score that incorporates elements of forward looking growth and profitability to estimate future cash flows and value them relative to current market prices.
• Then, select the top 50 companies by indicated dividend-yield.
4. Rank: Rank the remaining 50 securities by combined scores of highest gross dividend-yield and lowest one-year volatility (the annualized standard deviation for the 360 most recent trading days returns). Select the 15 stocks with the highest combined score and equally weight them.
Fixed Income ETF Security Selection:
The Sponsor focuses on macro and sector views when selecting ETFs that it believes hold higher yielding fixed income asset classes (i.e., high yield corporate bonds, floating rate bonds, emerging market debt, convertible securities, preferred securities, etc.). The Sponsor selects ETFs based upon criteria including, but not limited to:
• ETFs with assets above $50 million.
• Trading liquidity above $0.5 million median value for last 90 trading days.
• Security price above $5 per share.
Initial individual ETF weightings will range between approximately 2% and 5% of the Trust portfolio.
Dividend Growth Sleeve
Approximately 20% of the Trust portfolio will hold U.S.-listed equity companies that have shown the historical ability and willingness to increase their dividend distributions annually for a minimum number of years, described below.
1. Initial Universe: Start with all dividend paying U.S.-listed issuers.
2. Define Sub-Universe: Reduce the initial universe of securities to a sub-universe that meets the following requirements:
• Dividend growth: For the securities of large-capitalization companies, exclude companies that do not have a minimum ten-year history of dividend growth. For the securities of small- and mid-capitalization companies, exclude companies that do not have a minimum five-year history of dividend growth. The capitalizations of companies are determined by referencing the Russell 3000® Index. As of the most recent reconstitution on May 12, 2017, small-capitalization companies have $4.366 million or less in assets, mid-capitalization companies have between $4.366 million to $29.389 million in assets, and large-capitalization companies have $29.389 million or more in assets.
• Above-average dividend-yield: Exclude securities that do not have a dividend-yield of greater than 1.5%.
• Cash dividend coverage: Exclude companies without a history of increasing dividend coverage ratios.
• Growth: Exclude companies without a history of and prospects for above average growth of dividends, sales and earnings.
• Profitability: Exclude companies without a history of consistent and high profitability as measured by return-on-assets, return-on equity, gross margin and net margin.
3. Selection: From the sub-universe, identify companies for inclusion in the portfolio through a qualitative analysis based on the following factors:
• Cash-flow adequacy: Companies with earnings and operating cashflow significantly higher than the dividends paid as of the company’s most recent financial reporting period.
• Balance sheet: Companies that possess overall financial strength and exhibit balance sheet improvements relative to their peers and the marketplace. Financial strength is a qualitative determination based on a review of a company’s balance sheet. Balance sheet improvement is a determination of whether the factors that are considered for financial strength have improved over the last three years.
• Valuation: Companies whose valuations appear to be attractive based on measures such as price-to-earnings, price-to-book and price-to-cash flow.
• Industry leadership: Companies that possess a strong competitive position among their domestic and global peers (e.g., companies with less threat from new entrants or substitutes, companies with more bargaining power compared to customers or suppliers).
• Growth: Companies with a history of (and prospects for) above average growth of dividends, sales and earnings.
4. Rank: Rank the remaining securities by combined scores of highest gross dividend-yield and three-year dividend growth rates. Select the 30 stocks with the highest combined score. The selected stocks will be subject to the following constraints:
• Maximum 25% weight in any sector (as defined by Global Industry Classification Standard).
• No sector weight will differ by more than 5% from the initial sector weights of this Dividend Growth Sleeve’s initial universe.
If the selected stocks violate the sector constraints, the lowest scoring security will be removed and replaced by the next security with the highest combined score. This substitution process will be repeated, if necessary, until the constraints are met.
Principal Stability Sleeve
Approximately 30% of the Trust portfolio seeks to reduce potential volatility of the overall portfolio by investing in ETFs that hold at least 80% of their portfolios in investment grade fixed-income securities. The Sponsor focuses on macro and sector views when selecting these ETFs. The Sponsor selects ETFs based upon criteria including, but not limited to:
• ETFs with assets above $50 million.
• Trading liquidity above $0.5 million median value for last 90 trading days.
• Security price above $5 per share. Initial individual ETF weightings will range between 2% and 10% of the Trust portfolio.
Capital Appreciation Sleeve
Approximately 20% of the Trust portfolio seeks to provide growth of principal by investing in large-cap, U.S.-listed growth companies.
1. Initial Universe: Start with all U.S.- listed growth securities. Remove securities that are classified as small-capitalization or mid-capitalization in the Russell 3000® Index. Remove securities whose growth score is below average, as defined by Russell.
2. Define Sub-Universe: From the initial universe, identify companies for inclusion by focusing on factors including, but not limited to:
• Valuation. Companies whose valuations appear to be attractive based on measures such as price-to- earnings, price-to-book and price-to-cash flow.
• Growth. Companies with a history of (and prospects for) above average growth of dividends, sales and earnings.
• Profitability. Companies with a history of consistent and high profitability as measured by return-on-assets, return-on equity, gross margin and net margin.
• Industry leadership. Companies that possess a strong competitive position among their domestic and global peers (e.g., companies with less threat from new entrants or substitutes, companies with more bargaining power compared to customers or suppliers).
• Balance sheet. Companies that possess overall financial strength and exhibit balance sheet improvements relative to their peers and the marketplace. Financial strength is a qualitative determination based on a review of a company’s balance sheet. Balance sheet improvement is a determination of whether the factors that are considered for financial strength have improved over the last three years.
• Cash-flow adequacy. Companies with earnings and operating cashflow significantly higher than the dividends paid as of the company’s most recent financial reporting period.
3. Selection: Select the most attractive candidates from each sector for expected performance and risk. The securities will be selected and weighted so that the sector weightings of this sleeve be substantially similar to the sector weightings of the initial universe.
Securities in the final portfolio will be cross-referenced against other sleeves to ensure no security overlap.
INDEX DEFINITIONS: The Dow Jones Top Cap Value Index is a combination of the Dow Jones U.S. Large-Cap Value Total Stock Market Index and the Dow Jones U.S. Mid-Cap Value Total Stock Market Index. The Dow Jones U.S. Large-Cap Value Total Stock Market Index is designed to measure the performance of large-cap U.S. equity securities that are classified as “value” based on multi-factor analysis. The Dow Jones U.S. Mid-Cap Value Total Stock Market Index is designed to measure the performance of mid-cap U.S. equity securities that are classified as “value” based on multi-factor analysis. Indexes are unmanaged and it is not possible to invest directly in an index. The Russell 3000 Index is composed of 3000 large U.S. companies, as determined by market capitalization. This portfolio of Securities represents approximately 98% of the investable U.S. equity market. The Russell 3000 Index is comprised of stocks within the Russell 1000 and the Russell 2000 Indices.
Risks and Other Considerations
As with all investments, you may lose some or all of your investment in the Trust. No assurance can be given that the Trust’s investment objective will be achieved. The Trust also might not perform as well as you expect. This can happen for reasons such as these:
• Securities prices can be volatile. The value of your investment may fall over time. Market value fluctuates in response to various factors. These can include stock market movements, purchases or sales of securities by the Trust, government policies, litigation, and changes in interest rates, inflation, the financial condition of the securities’ issuer or even perceptions of the issuer. Units of the Trust are not deposits of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• Securities selected according to this strategy may not perform as intended. The Trust is exposed to additional risk due to its policy of investing in accordance with an investment strategy. Although the Trust's investment strategy is designed to achieve the Trust's investment objective, the strategy may not prove to be successful. The investment decisions, including the selection methodologies used to determine the holdings of the four portfolio sleeves, may not produce the intended results and there is no guarantee that the investment objective will be achieved.
• The Trust invests in shares of ETFs. ETFs are investment pools that hold other securities. The ETFs in the Trust may be passively-managed index funds that seek to replicate the performance or composition of a recognized securities index. ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective. Shares of ETFs may trade at a discount from their net asset value in the secondary market. This risk is separate and distinct from the risk that the net asset value of the ETF shares may decrease. The amount of such discount from net asset value is subject to change from time to time in response to various factors. The underlying ETF has management and operating expenses. Consequently, you will bear not only your share of your Trust’s expenses, but also the expenses of the underlying ETFs. By investing in ETFs, the Trust incurs greater expenses than you would incur if you invested directly in the ETFs.
• The ETFs are subject to annual fees and expenses, including a management fee. Unitholders of the Trust will bear these fees in addition to the fees and expenses of the Trust. See “Fees and Expenses” for additional information.
• The Trust is subject to an ETF’s index correlation risk. To the extent that an underlying ETF is an index tracking ETF, index correlation risk is the risk that the performance of an ETF will vary from the actual performance of the fund’s target index, known as “tracking error.” This can happen due to fund expenses, transaction costs, market impact, corporate actions (such as mergers and spin-offs) and timing variances.
• The value of the fixed-income securities in the ETFs will generally fall if interest rates, in general, rise. Typically, fixed-income securities with longer periods before maturity are more sensitive to interest rate changes. The Trust may be subject to greater risk of rising interest rates than would normally be the case due to the current period of historically low rates.
• An ETF or an issuer of securities held by an ETF may be unwilling or unable to make principal payments and/or to declare distributions in the future, may call a security before its stated maturity, or may reduce the level of distributions declared. Issuers may suspend distributions during the life of the Trust. This may result in a reduction in the value of your units.
• The financial condition of an ETF or an issuer of securities held by an ETF may worsen, resulting in a reduction in the value of your units. This may occur at any point in time, including during the primary offering period.
• Economic conditions may lead to limited liquidity and greater volatility. The markets for fixed-income securities, such as those held by certain ETFs, may experience periods of illiquidity and volatility. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in significant valuation uncertainties in a variety of fixed-income securities. These conditions resulted, and in many cases continue to result in, greater volatility, less liquidity, widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. These market conditions may make valuation of some of the securities held by an ETF uncertain and/or result in sudden and significant valuation increases or declines in its holdings.
• Certain ETFs held by the Trust invest in securities that are rated below investment-grade and are considered to be “junk” securities. Below investment-grade obligations are considered to be speculative and are subject to greater market and credit risks, and accordingly, the risk of nonpayment or default is higher than with investment-grade securities. In addition, such securities may be more sensitive to interest rate changes and more likely to receive early returns of principal in falling rate environments.
• Certain ETFs held by the Trust may invest in securities that are rated as investment-grade by only one rating agency. As a result, such split-rated securities may have more speculative characteristics and are subject to a greater risk of default than securities rated as investment-grade by more than one rating agency.
• The Trust invests in securities issued by small- and mid-capitalization companies and certain ETFs held by the Trust may invest in securities issued by small-capitalization and mid-capitalization companies. These securities customarily involve more investment risk than securities of large-capitalization companies. Small-capitalization and mid-capitalization companies may have limited product lines, markets or financial resources and may be more vulnerable to adverse general market or economic developments.
• The Trust invests in U.S.-listed foreign securities and certain ETFs held by the Trust invest in foreign securities. The Trust’s investment in foreign securities presents additional risk. Securities of foreign issuers present risks beyond those of domestic securities. More specifically, foreign risk is the risk that foreign securities will be more volatile than U.S. securities due to such factors as adverse economic, currency, political, social or regulatory developments in a country, including government seizure of assets, excessive taxation, limitations on the use or transfer of assets, the lack of liquidity or regulatory controls with respect to certain industries or differing legal and/or accounting standards.
• Certain ETFs held by the Trust include securities issued by companies headquartered or incorporated in countries considered to be emerging markets. Emerging markets are generally defined as countries with low per capita income in the initial stages of their industrialization cycles. Risks of investing in developing or emerging countries include the possibility of investment and trading limitations, liquidity concerns, delays and disruptions in settlement transactions, political uncertainties and dependence on international trade and development assistance. Companies headquartered in emerging market countries may be exposed to greater volatility and market risk.
• Share prices or dividend rates on the securities in the Trust may decline during the life of the Trust. There is no guarantee that share prices of securities in the Trust will not decline and that the issuers of the securities will declare dividends in the future and, if declared, whether they will remain at current levels or increase over time.
• Inflation may lead to a decrease in the value of assets or income from investments.
• The Sponsor does not actively manage the portfolio. The Trust will generally hold, and may, when creating additional units, continue to buy, the same securities even though a security’s outlook, market value or yield may have changed.
See “Investment Risks” in Part A of the prospectus and “Risk Factors” in Part B of the prospectus for additional information.
Please see the Trust prospectus for more complete risk information.
Unit Investment Trusts are fixed, not actively managed and should be considered as part of a long-term strategy. Investors should consider their ability to invest in successive portfolios, if available, at the applicable sales charge. UITs are subject to annual fund operating expenses in addition to the sales charge. Investors should consult an attorney or tax advisor regarding tax consequences associated with an investment from one series to the next, if available, and with the purchase or sale of units. Guggenheim Funds Distributors, LLC does not offer tax advice.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
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