Value Investing with Unit Investment Trusts
- The winding down of quantitative easing by the Federal Reserve has coincided with the rise in short term interest rates
- Since growth stocks base more of their valuations off of future cash flows, they can be more sensitive to interest rate changes – particularly long term rates
- Value stocks tend to be established companies that typically compensate investors sooner which can make them less sensitive to changes in interest rates1
- As interest rates have maintained an upward trajectory, we have seen growth stocks exhibit a higher level of volatility
- Increasing exposure to value stocks can decrease overall portfolio volatility during a period of rising interest rates while maintaining participation in the equity market
Rolling 20 Day Standard Deviation: Russell 1000 Growth, Russell 1000 Value vs. 1 month & 10 Year Treasury Rates
Observation Period: 1/29/2014 – 12/31/2018
- The Guggenheim Diversified Dividend & Income Portfolio and the First Trust Equity Income Select Portfolio have shown strong performance characteristics indicative of a value-oriented investing style.
- For 5 years through December 31, 2018, the strategies shown below have outperformed their respective benchmarks on a total return basis while realizing lower volatility
|Trust/Benchmark||Cumulative Return||Average Annual Return (CAGR)||Standard Deviation (Annualized)||Sharpe Ratio (Annualized)||Alpha (Annualized)|
|Guggenheim Diversified Dividend & Income Portfolio||50.49%||8.52||0.124||0.724||1.40%|
|Strategy Benchmark: Russell 3000 Index||46.30%||7.91%||0.133||0.638|
|First Trust Equity Income Select||41.94%||7.26%||0.126||0.622||1.69%|
|Strategy Benchmark: Russell 1000 Value Index||33.43%||5.94%||0.129||0.511|
Data Sources: Bloomberg, YCharts, Guggenheim Investments, First Trust Portfolios. Performance data 5 years through December 31, 2018.
1 Equity Investing in a Rising Rate Environment, Hotchkis & Wiley
Both cumulative and average annual returns of the unit investment trust strategy are based on distributions received in cash and assume income and principal distributions are paid out on the payable date during the life of the unit investment trust. All distributions from the series are reinvested at the time of purchase into the following series utilized in the historical chain of the strategy. The following series of a strategy is determined by utilizing the series intended for the investment continuation of the strategy upon termination. If no series intended for investment continuation of a strategy exists, the existing primary, if available, at time of termination is utilized. Returns are calculated excluding the Transactional Sales Charges for each unit investment trust series but does reflect the Creation & Development Fee and trust operating expenses as incurred for each unit investment trust series included in the calculation. The returns do not adjust for taxes. If adjusted or taxes, the effects of taxation would reduce the performance depicted.
Past performance is no indicator of future results. Investment return and principal value will fluctuate with changes in market conditions. We make no assurance that any investment product based on an index will accurately track index performance or provide positive investment returns. An investment in units of a unit investment trust and continuing the investment in units of subsequent series of a unit investment trust strategy, when redeemed may be worth more or less than their original investment.
The Russell 3000 Index is a market-capitalization-weighted equity index maintained by the FTSE Russell that provides exposure to the entire U.S. stock market. The index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities.
The Russell 1000 Value Index is a subset of the securities found in the Russell 1000. The stocks included in the value index are selected based on a “probability” of value as measured by their relative book-to-price (B/P) ratio. The Russell 1000 Index is an index of approximately 1,000 of the largest companies in the U.S. equity market.
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