Principal Investment Strategy
The Trust seeks to provide total return primarily through capital appreciation and dividend income by investing in a diversified portfolio of international equity securities listed on the major public U.S. securities exchanges listed below. The Trust’s strategy is to capture international growth potential, while applying dividend income to counterbalance global economic volatility and to potentially insulate the Trust from further potential domestic slowdown.
The Sponsor, with the assistance of Guggenheim Partners Investment Management, LLC (“GPIM”), an affiliate of the Sponsor and Guggenheim Partners, LLC, has selected the securities to be included in the Trust’s portfolio. The Sponsor and GPIM believe that companies that distribute significant dividends on a consistent basis demonstrate strong financial strength and positive performance relative to their peers.
See “Investment Policies” in Part B of the prospectus for more information.
The Trust’s portfolio was constructed and the securities were selected five business days prior to the initial date of deposit (the “Security Selection Date”) using the Security Selection Rules and the Portfolio Diversification & Concentration Rules outlined below.
Security Selection Rules:
In constructing the Trust’s portfolio, 30 securities were selected based on the following fundamentally based quantitative criteria as of the Security Selection Date. Except as set forth herein, the investment strategy utilizes information provided by Bloomberg L.P.
- Start with an initial universe of securities that consists exclusively of all non-U.S. headquartered companies with equity securities listed on the New York Stock Exchange (“NYSE”) and the NASDAQ® Stock Market (“NASDAQ”).
- Reduce the initial universe of securities to a sub-universe that consists exclusively of all securities that meet all of the following requirements:
- Market capitalization greater than $5 billion. Market capitalization is determined by the closing price as of the Security Selection Date.
- Free float over 20% of common shares outstanding. Free float is provided by Bloomberg L.P. and is defined as the number of shares that are available to the public and is calculated by subtracting the shares held by insiders and those deemed to be stagnant shareholders from the shares outstanding. Stagnant holders include employee stock ownership plans, employee share ownership Trusts, qualifying employee share ownership Trusts, employee benefit Trusts, corporations not actively managing money, venture capital companies and shares held by governments. The number of shares is stated in millions.
- Minimum liquidity of $0.5 million. Liquidity is determined by the average 20 day trading volume in U.S. dollars and is calculated as the average of a 20 trading day look back from the Security Selection Date (i.e., trading volume in shares multiplied by the closing price for the day).
- Minimum one year price history for each security, as of the Security Selection Date, based on trading on any U.S. exchange or alternative trading system.
- Minimum three-year price history for each security’s primary equity listing, as designated by Bloomberg L.P. For ADR securities, the “primary equity listing” is generally the foreignlisted security that the depository receipt references. For companies that cross list across countries, Bloomberg determines the “primary equity listing” based on their proprietary analysis of listing dates, country of domicile, and liquidity. For some foreign companies, the U.S.-listed security is also the “primary equity listing” if the foreign company chose only to list equity securities in the United States.
- Duplication screen so that in the event a parent company has multiple classes of securities that meet the above criteria, the class that has the greatest market capitalization is considered for final selection.
- Dividend Yield Rule: Select from the sub-universe above the 30 securities, as of the Security Selection Date, with the highest arithmetic average of the three trailing yearly actual dividend yields. The three trailing yearly periods are defined as the full year of time that each end on the same month and day as the Security Selection Date for the current year, last year, and two years ago. Each yearly period’s actual dividend yield is measured as all dividends whose ex-dividend date fell within the yearly period, divided by the latest closing security price before the begin date of such yearly period. For example, if the Security Selection Date is March 12, 2012, then the prior yearly period includes March 13, 2011 to March 12, 2012, and the starting security price for this period is the last closing price of the security before the begin date, which was March 11, 2011 since the 13th was a Sunday. Securities are eligible for selection if their actual dividend yield exceeded the median actual dividend yield for all securities in the sub-universe in each of the three prior years. Median dividend yield is defined as the specific dividend yield that separates the higher half of the annual dividend yields of the sub-universe of securities from the lower half of the annual dividend yields of the sub-universe of securities. The 30 securities are subject to the Portfolio Diversification & Concentration Rules below.
Portfolio Diversification & Concentration Rules:
The Trust’s portfolio will consist of 30 securities, equally weighted as of the Security Selection Date, using the Security Selection Rules outlined above that also satisfy the Portfolio Diversification & Concentration Rules below:
- Sector Diversification: The Trust’s portfolio must consist of securities from a minimum of six of the Global Industry Classification Standards (“GICS”) sectors, with no more than 25% of the Trust’s portfolio in any single GICS sector as of the Security Selection Date.
- Geographical Diversification: The Trust’s portfolio must consist of securities from companies headquartered, as provided by Bloomberg L.P., in at least 10 different countries with no more than 20% of the Trust’s portfolio from any single country as of the Security Selection Date.
- If the Trust portfolio does not consist of securities from a minimum of six GICS sectors, those securities originally selected for the Trust portfolio that have the lowest average 12-quarter dividend yield as of the Security Selection Date are replaced with securities in the sub-universe that have the next-highest average 12- quarter dividend yield and that are also classified by GICS as belonging to an unrepresented sector in the Trust portfolio. This substitution process is repeated until the Trust portfolio contains securities from a minimum of six GICS sectors. Similarly, if more than 25% of the Trust portfolio is represented by a single GICS sector, the securities from that sector with the lowest average 12-quarter dividend yield are replaced with securities in the sub-universe that have the nexthighest average 12-quarter dividend yield and that are also classified in a different GICS sector.
- If the Trust portfolio does not consist of securities of companies headquartered in at least 10 different countries, those securities originally selected for the Trust portfolio that have the lowest average 12-quarter dividend yield as of the Security Selection Date are replaced with securities in the sub-universe that have the next-highest average 12-quarter dividend yield and that are also securities of companies located in an unrepresented country in the Trust portfolio. This substitution process is repeated until the Trust portfolio contains securities of companies headquartered in at least 10 different countries. Similarly, if more than 20% of the Trust portfolio is represented by securities of companies headquartered in a single country, the securities of companies headquartered in that country with the lowest average 12- quarter dividend yield are replaced with securities in the sub-universe that have the next-highest average 12- quarter dividend yield and that are also securities of companies located in a different country.
Please note that due to the fluctuating nature of security prices, the weighting of an individual security or sector in the Trust portfolio may change after the Security Selection Date.
In the event that any diversification or concentration limit is breached in the construction of the Trust’s portfolio, the lowest dividend-yielding security that breached the limit is removed and the Dividend Yield Rule is reapplied until a portfolio of 30 securities is generated that satisfies both the Security Selection Rules and the Portfolio Diversification & Concentration Rules.
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.
- Due to the current state of the economy, 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. Starting in December 2007, economic activity declined across all sectors of the economy, and most countries experienced increased unemployment. The economic crisis affected the global economy with European and Asian markets also suffering historic losses. In addition, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating on the United States to “AA+” from “AAA.” Effects of the crisis can still be felt in many countries around the world and may have an impact on the securities held by the Trust.
- The Trust invests in U.S.-listed foreign securities and American Depositary Receipts (“ADRs”). The Trust’s investment in U.S.-listed foreign securities and ADRs presents additional risk. ADRs are issued by a bank or Trust company to evidence ownership of underlying securities issued by foreign corporations. 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.
- The Trust invests in securities issued by mid-capitalization companies. These securities customarily involve more investment risk than securities of large-capitalization companies. Midcapitalization companies may have limited product lines, markets or financial resources and may be more vulnerable to adverse general market or economic developments.
- 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 the 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.