Dorsey, Wright & Associates Model Portfolio Training

1. Dorsey, Wright & AssociatesModel Portfolio Training Tom Dorsey President www.dorseywright.com P: 804-320-8511 F: 804-320-8577 For Broker/Advisor Use Only. Not To Be Used With The Public

2. The information contained in this presentation represents the views of Dorsey, Wright & Associates (DWA), and not those of any First Trust exchange-traded fund or First Trust Advisors L.P. Nothing should be construed as investment advice in relation to any fund. This information is for informational purposes only and is not for public distribution. This information is not an offer to sell or the solicitation of an offer to buy any interest in any securities or investment services. The information in this presentation may not be reproduced or further disseminated without the express written consent of First Trust Advisors L.P. and DWA. This presentation has been prepared by DWA without taking into account any potential investors’ financial situation, objectives or needs, and should not be relied upon in evaluating the advisability of investing in any First Trust product. All opinions and views constitute judgments of DWA as of the date indicated and are subject to change without notice. First Trust Advisors L.P. believes the information provided in this presentation is reliable as of the date of this presentation but, to the extent permitted by law, First Trust Advisors L.P. does not warrant its accuracy or completeness and accepts no liability for errors or misstatements, negligent or otherwise, or for any loss or damage suffered by any person in relation to the information in this presentation. For Broker/Advisor Use Only. Not To Be Used With The Public

3. For Broker/Advisor Use Only. Not To Be Used With The Public

4. Game Plan "What’s the worst thing that can happen to a quarterback? He loses his confidence."Terry Bradshaw For Broker/Advisor Use Only. Not To Be Used With The Public

5. Supply and Demand We all understand the basic forces of supply and demand. The same forces that affect prices in the supermarket also affect prices in the stock market. Stocks, sectors, and asset classes move in and out of favor just like produce in the supermarket. For Broker/Advisor Use Only. Not To Be Used With The Public © Dorsey, Wright & Associates 2009

6. Original Point & Figure Chart Dates back to the late 1800’s Depicts the battle between supply & demand 6 For Broker/Advisor Use Only. Not To Be Used With The Public

7. Double Top & Double Bottom 7 For Broker/Advisor Use Only. Not To Be Used With The Public

8. Point & Figure Basics X’s = Price is rising O’s = Price is falling Alternate columns of X’s and O’s Minimum of 3 X’s or O’s in a column Time = First action in month use number. (1 for January, etc.) Use daily high & low for charting price action. 8 © Dorsey, Wright & Associates 2009

9. A Top-Down Approach This University of Chicago study, published in Investor’s Business Daily, suggests that sector and market risk control about 80% of the price action. Yet, the average investor spends the vast majority of resources analyzing company risk, i.e. fundamentals Source: Investors Business Daily, "Check Out Industry Rankings Before You Purchase a Stock" by Nancy Gondo 9

10. A Tactical Approach to Asset Allocation 10

11. All major sports have a ranking system. The Point & Figure Relative Strength tool is the ranking system we use for ETF’s. Daily Calculation: Index X 100 = Relative Strength Index Reading This reading is plotted on a Point & Figure chart which then tells us whether we can expect that ETF to outperform or underperform the base index. Relative Strength Calculation 11

12. Relative Strength Example When RS Chart is on a buy signal, it suggests outperformance of the numerator RS Signal: Buy = Outperformance of EFA to Bonds Sell = Underperformance of EFA to Bonds 12

13. Constructing DALI Level One • Domestic Equities • International Equities • Commodities • Foreign Currencies • Fixed Income • Cash 13

14. Historical Correlations 14

15. DALI Guidance in 2008 - 2009 15

16. 16

17. Expanding DALI: Best in Class Do You Want…. or 17

18. Domestic Equity Exposure: Where to Go? 18 For Broker/Advisor Use Only. Not To Be Used With The Public

19. Relative Strength Calculation • All major sports have a ranking system. The Point & Figure Relative Strength tool is the ranking system we use for ETF’s. • Daily Calculation: ETF X 100 = Relative Strength Index BenchmarkReading • This reading is plotted on a Point & Figure chart which then tells us whether we can expect that ETF to outperform or underperform the base index. For Broker/Advisor Use Only. Not To Be Used With The Public

20. First Trust Materials AlphaDex (FXZ)vs.S&P 500 (SPX) For Broker/Advisor Use Only. Not To Be Used With The Public

21. FirstTrust Sector Rotation • Invest in only those sector ETFs from FirstTrust whose RS charts are in X’s versus the S&P 500 • Equally weight among positive RS ETFs from the potential inventory • Only re-balancethe portfolio when an issue moves in or out based upon the RS chart • Turnover can vary based upon volatility in the markets. • Because the average relative strength column change (X’s or O’s) lasts over a year, we find the portfolio to be very tax efficient; typically selling the losers for short term losses and holding the big winners for long term gains. • While the portfolio remains 100% invested at all times there is risk management with the sell discipline (RS reversal into O’s). For Broker/Advisor Use Only. Not To Be Used With The Public

22. DWA RS SCREEN: X’s = In O’s = Out FirstTrust Sector Model: Domestic Equity Exposure First Trust Sector Rotation Portfolio Equal-Weighted Portfolios, Re-Balance When a Change Occurs For Broker/Advisor Use Only. Not To Be Used With The Public

23. FirstTrust Sector ETF Model (FTRUST) April, 2009 For Broker/Advisor Use Only. Not To Be Used With The Public

24. Dorsey, Wright First Trust Sector Rotation Strategy Or Dorsey, Wright Tactical Asset Strategy Leg #1 & #2: Two of the Following (Level One of DALI) • Domestic Equities • International Equities • Commodities • Foreign Currencies • Fixed Income • Cash Leg #3: • Domestic Equity Exposure • The Playbook 24

25. For Broker/Advisor Use Only. Not To Be Used With The Public

26. Country vs. Country Relative Strength 26 For Broker/Advisor Use Only. Not To Be Used With The Public

27. DALI Guidance in 2008 - 2009 27

28. Advisor Type: SMA Advisor Goals / Objectives: • Augment the SMA portfolios with a tactical, relative strength approach which is typically uncorrelated to most SMA managers. • Provide a way to hedge when the market is declining. 28 28

29. Core – Satellite Approach: Advisors Looking to Add a Tactical Satellite $150,000 $150,000 $200,000 Positions would be based on the 2 favored asset classes in DALI $100,000 Dollar vs. Foreign Currencies 29 $400,000

30. Why Relative Strength is Central to Our Evaluation Process • Focus on implementation of a known factor - price • Clean data / Point-in-time data • 100% Systematic processes • More complexity doesn’t make it better • Test everything (many “truths” don’t work) For Broker/Advisor Use Only. Not To Be Used With The Public

31. Why Everyone Doesn’t Do It • Forces us to do what is unnatural • Hold onto the Winners – Sell the Losers - Don’t stay wrong • Makes us think about the portfolio as a whole – not position by position • Tough to hold course at the turning points • Requires us to remain disciplined – go to the gym everyday • Choppy markets are very frustrating For Broker/Advisor Use Only. Not To Be Used With The Public

32. "Make yourself necessary to someone." --  Ralph Waldo Emerson Developing a Game Plan: AMethod of Analysis