The Rising Rate Defensive Equity Portfolio, Series 5 ("Trust") seeks to provide capital appreciation.
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
Under normal circumstances, the Trust invests at least 80% of the value of its assets in equity securities of United States exchange-listed companies. The U.S.-listed equity securities held by the Trust may include equity securities of U.S. and non-U.S. companies. The Trust may invest in equity securities issued by small-, mid- and large-capitalization companies. As a result of the strategy, the Trust invests significantly in the information technology sector, the consumer products sector and the financials sector.
Interest rates have been at historic lows for an extended period of time and the Sponsor believes that these historically low interest rates are likely to rise. The Trust seeks to provide a portfolio that is defensive against rising interest rates. The Trust’s strategy is designed to provide a diversified portfolio of equity securities that the Sponsor expects to perform well in an environment of rising interest rates, as measured by movements in the U.S. 10-year treasury bond. The Sponsor defines a rising rate environment as a period in which the U.S. Treasury 10-year yield rises by 150 basis points or more from a prior low value. The prior low value must have been proceeded by a decline in the yield by at least the same amount (i.e., 150 basis points). The start of the rising rate period is the low value before the 150 basis points or greater rise in the yield. The end of the rising rate period is the highest level of the yield that was observed prior to a subsequent decline of at least 150 basis points from that high level. The Trust is not directly intended to provide investors with increasing amounts of dividend income, rising interest income distributions or interest distributions that increase as prevailing interest rates rise.
The Sponsor has sought the assistance of Ned Davis Research, Inc. (“NDR”), as portfolio consultant, to develop the Trust’s investment strategy. NDR evaluates companies based on their sensitivity to key factors identified as having positive correlations of returns in rising interest rate environments.
Ned Davis Research
NDR is an independent, institutional research company. Founded in 1980, NDR has provided institutional investors with unbiased and unaffiliated investment research. NDR provides a disciplined approach to in-depth financial analysis, which is supported by the sophisticated proprietary analytic tools that marry fundamental and technical research. Research ranges from asset allocation, to sector and industry groups, individual stocks, economic, and quantitative research. NDR maintains clients in over 30 countries, and serves over 1,100 institutional clients at investment firms, banks, insurance companies, mutual funds, hedge funds, pension and endowment funds, registered investment advisors and equity research departments.
NDR also provides custom research solutions that offers personalized research analysis ranging from sophisticated asset allocation models to simple charts and data retrieval. NDR works with clients to create ideas to address research needs and act as a supplemental resource to proprietary strategy.
To select the portfolio, the Sponsor follows a disciplined process developed with NDR that includes both quantitative screening and qualitative analysis. The portfolio selection process begins with the following universe of companies as of the date of the security selection:
• Only companies that have one or more common stock issues are considered.
• Only companies that have one or more stocks trading on NYSE, NASDAQ, or AMEX stock exchanges are considered.
• Companies that are incorporated in the United States or its territories are eligible. Depository receipts issues are not. Foreign issues that trade directly on U.S. exchanges and are based in a U.S. territory are eligible.
NDR then selects the securities for the portfolio that it believes possess the potential to have a positive correlation to rising interest rates by applying the following series of screens, which NDR has determined have historically produced a portfolio that outperforms the benchmark during periods of rising interest rates. However, prior performance is not indicative of future results. These screens include:
• Earnings Revision. A higher score indicates an upward revision, which signals an improved analyst outlook for the stock going forward.
• Raw Materials Sensitivity. A higher score indicates a stronger relationship with the upward movement of commodity prices, which are generally influenced positively by an improving economy and rising rates.
• Earnings Retention Rate. Measures the percentage of current earnings retained by the company. A higher score indicates a higher rate of retained earnings, and a lower need to take on debt in a rising rate environment.
• Cyclical vs. Consumer Sensitivity. A higher number is preferred when cyclical stocks are expected to outperform consumer stocks, generally associated with an improving economy.
• EBITDA/Enterprise Value. A higher EBITDA/Enterprise Value signifies that each unit of a stock's value is used to generate more EBITDA profits, which normally leads to higher stock returns.
The stocks with the highest rankings are then selected and equal-weighted within the portfolio at the time of selection.
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.
• The Trust invests significantly in the information technology sector. As a result, the factors that impact the information technology sector will likely have a greater effect on this Trust than on a more broadly diversified Trust. Adverse developments in the sector may affect the value of your investment. Companies involved in this sector must contend with rapid changes in technology, intense competition, government regulation and the rapid obsolescence of products and services. Furthermore, sector predictions may not materialize and the companies selected for the Trust may not represent the entire sector and may not participate in the overall sector growth.
• The Trust invests significantly in the financial sector. As a result, the factors that impact the financial sector will likely have a greater effect on this Trust than on a more broadly diversified Trust. Companies in the financial sector include banks, insurance companies and investment firms. The profitability of companies in the financial sector is largely dependent upon the availability and cost of capital which may fluctuate significantly in response to changes in interest rates and general economic developments. Financial sector companies are especially subject to the adverse effects of economic recession, decreases in the availability of capital, volatile interest rates, portfolio concentrations in geographic markets and in commercial and residential real estate loans, and competition from new entrants in their fields of business. Negative developments initially relating to the subprime mortgage market and subsequently spreading to other parts of the economy, have adversely affected credit and capital markets worldwide and significantly impacted financial sector companies.
• The Trust invests significantly in the consumer products sector. As a result, the factors that impact the consumer products sector will likely have a greater effect on this Trust than on a more broadly diversified Trust. General risks of companies in the consumer products sector include cyclicality of revenues and earnings, economic recession, currency fluctuations, changing consumer tastes, extensive competition, product liability litigation and increased government regulation. A weak economy and its effect on consumer spending would adversely affect companies in the consumer products sector.
• The Trust invests 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.
• 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.
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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