Digital Gaming and Technology Portfolio, Series 3
Over the years, gaming has evolved from single-player to multi-player and has become a popular
way for friends and family to connect. It is estimated that three out of every four, or 244 million,
U.S. consumers play video games, an increase of 32 million people since 2018.1 In the midst of the
COVID-19 pandemic, this trend has continued to emerge in gaming engagement.
Consider The Following
- Consumer spending on video gaming in the U.S. reached $11.2 billion in the third quarter of
2020, an increase of 24% compared to the third quarter of 2019. In addition, sales of video
game content reached $10.04 billion in the third quarter of 2020, up 24% compared to the
third quarter of 2019.2
- Mobile gaming is expected to be the fastest growing segment of the market and is projected
to have a compound average growth rate (CAGR) of 25.5% from 2017-2022. In addition, the
digital games market is anticipated to have significant growth with a CAGR of 18.98% from
2017-2022. The global market size is predicted to reach $272.24 billion by 2022.3
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
Portfolio Selection Process
The selection process begins with an initial universe of Digital Gaming stocks that First Trust Analysts believe have significant business operations in digital gaming, have adequate liquidity for
investment and that trade on a major U.S. stock exchange. To ensure adequate liquidity, the sponsor only selects those stocks that have enough daily liquidity to adequately support the buying and
selling of the anticipated number of shares on any given day to meet the portfolio’s purchases and/or redemption requirements. Industries included in this universe are Consumer Electronics, Interactive
Home Entertainment, Interactive Media & Services, Semiconductors, Technology Hardware, Storage & Peripherals, and Systems Software.
The final portfolio is then selected by a team of equity analysts who evaluate each stock by examining its relative valuation and other qualitative factors such as competitive advantages, new products
and quality of management. Relative valuation uses price and enterprise value against underlying business metrics, such as cash flow or sales, and forecasted fundamentals to create multiples which
enable cross company comparisons to understand how the market is pricing one equity verses another.
Our selection process attempts to find the stocks with the best prospects for above-average capital appreciation by identifying those that meet our investment objectives, trade at attractive valuations,
and, in our opinion, are likely to exceed market expectations of future cash flows.
The final portfolio is comprised of 20 approximately equally weighted Digital Gaming and Technology stocks.
1,2The NPD Group, Inc.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
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.
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 both the communication services and
information technology sectors which involves additional risks, including limited diversification. The
companies engaged in the communication services sector are subject to rapidly changing technology,
rapid product obsolescence, loss of patent protection, cyclical market patterns, governmental regulation,
evolving industry standards and frequent new product introductions. Certain companies may be particularly
susceptible to cybersecurity threats, which could have an adverse effect on their business. The companies
engaged in the information technology sector are subject to fierce competition, high research and
development costs, and their products and services may be subject to rapid obsolescence. Technology
company stocks, especially those which are Internet-related, may experience extreme price and volume
fluctuations that are often unrelated to their operating performance. There is no assurance that the
projections stated herein will be realized.
The portfolio will invest at least 80% of its assets in digital gaming companies or technology companies.
Digital gaming companies are companies which derive 50% of their revenue from (i) developing software or
providing hardware for the entertainment, educational software, or virtual reality/simulation segments of
the digital gaming industry, or (ii) providing intellectual property in support of digital gaming, educational
software, or virtual reality/simulation segments.
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.
An investment in a portfolio containing equity securities of foreign issuers is subject to additional risks,
including currency fluctuations, political risks, withholding, the lack of adequate financial information, and
exchange control restrictions impacting foreign issuers. Risks associated with investing in foreign 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 foreign 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.
The COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
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.
Although this portfolio terminates in approximately 15 months, the strategy is long-term. Investors should
consider their ability to pursue investing in successive portfolios, if available. There may be tax consequences
unless units are purchased in an IRA or other qualified plan.