WCM International Equity Portfolio, Series 3
The WCM International Equity Portfolio is a unit investment trust (UIT) which invests in stocks that are selected by WCM Investment Management, LLC (“WCM”). WCM uses a bottom-up approach that
seeks to identify companies with attractive fundamentals, such as long-term growth in revenue, earnings, and show a high probability for future growth. They focus on industry-leading, non-U.S.
organizations led by strong management teams with sound business strategies. WCM believes these companies are industry leaders and that they have the potential to lead their industries well into
the future. Under normal circumstances, the portfolio will invest at least 80% in equity securities of non-U.S. companies or depositary receipts of non-U.S. companies. This UIT seeks above-average
capital appreciation; however, there is no assurance the objective will be met.
Portfolio Selection Process
WCM is a privately-held firm focused on equity investing with a specific expertise in
international and emerging markets. They strive to build and maintain an organization that
nurtures excellence and innovation. WCM seeks to find companies they believe have the best
prospects for above-average capital appreciation through the following selection process:
Identify the Universe | The first step in the process is to identify the investible universe, primarily
comprised of non-U.S. companies. WCM considers a company to be non-U.S. if the company is
organized under the laws of, has its principal offices in, or has its securities principally traded in,
a country other than the U.S.; or if the company derives at least 50% of its revenues or net profits
from, or has at least 50% of its assets or production in, a country other than the U.S.
Screen for Following Criteria | The next step is to evaluate companies based on multiple
factors, including the following:
- Market capitalization greater than $2 billion USD and average daily trading volume of
more than $3 million USD per day.
- Financial strength, indicated by strong cash flow generation and low financial leverage.
- Returns on invested capital that exceed the cost of capital.
- Attractive end markets with strong runways for growth.
Analyze Eligible Companies | From the remaining companies, WCM then analyzes eligible
companies with bottom-up, fundamental research with a focus on the following factors:
- Financial performance, which is assessed by analyzing a company’s key financials metrics
including revenues, profit margin, returns, and leverage;
- Competitive position, which is indicated by high/rising returns on investment capital
(ROIC), market share gains resulting from revenue growth greater than the industry, and
improving pricing power;
- Future growth potential, indicated by favorable demographics, rising income levels,
pricing power, innovation capabilities and opportunities for market share gains; and
- Intrinsic value, which they determine using a discounted cash flow model (DCF), historical
EV/EBITDA (compares a company’s Enterprise Value to its Earnings Before Interest, Taxes,
Depreciation and Amortization), and next year price-to-earnings ratio (“P/E”).
Select the Portfolio | The final step is to select the portfolio of companies based on the criteria
detailed above.
Portfolio Objective
This UIT seeks above-average capital appreciation; however, there is no assurance the objective
will be met.
WCM is a registered trademark of WCM Investment Management, LLC and is licensed for use by First Trust Portfolios L.P. The trust is not sponsored, endorsed, sold or promoted by WCM. WCM makes no representation
or warranty, express or implied, to the owners of the trust or any member of the public regarding the advisability of investing in securities generally or in the trust. WCM has no obligation to take the needs of First Trust
Portfolios L.P. or the owners of the trust into consideration in selecting the securities for the trust. WCM is not responsible for and has not participated in the determination of the prices and amount of the trust or the timing
of the issuance or sale of the trust or in the determination or calculation of the equation by which the trust is to be converted into cash. WCM has no obligation or liability in connection with the administration, marketing or
trading of the trust.
You should consider the portfolio's investment objective, 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.
Not FDIC Insured Not Bank Guaranteed May Lose Value |
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 financials sector which involves
additional risks, including limited diversification. The companies engaged in the financials sector are subject
to the adverse effects of volatile interest rates, economic recession, decreases in the availability of capital,
increased competition from new entrants in the field, and potential increased regulation.
A significant percentage of the securities held in the trust are issued by companies headquartered or
incorporated in Europe, which may present more risks than a portfolio which is broadly diversified over
several regions.
Certain securities held by the portfolio are issued by companies in the Asia Pacific region, making the portfolio more susceptible to the economic, market, regulatory, political,
natural disasters and local risks of the Asia Pacific region. The region has historically been highly dependent on global trade which creates a risk with this dependency on global growth. The stock markets tend to have a larger
prevalence of smaller companies that are inherently more volatile and less liquid than larger companies.
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.
Risks associated with investing in non-U.S. securities may be more pronounced in emerging markets where the securities markets are substantially smaller, less developed, less liquid, less regulated, and more volatile than
the U.S. and developed non-U.S. markets.
An investment in a portfolio containing small-cap and mid-cap companies is subject to additional risks, as the share prices of small-cap companies and 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.
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.