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Digital World Leaders Strategy Portfolio, Series 16

The tasks we do on a daily basis continue to shift to digital sources. This phenomenon is occurring worldwide, not just here in the United States. In fact, a lot of countries outside of the United States are significantly further along in terms of their transition to a digital economy. Every day, the world population shifts more of its workload and daily tasks to online or computerized sources.

This change is broad based and affects any number of industries. Shopping, content dissemination, human interaction, and advertising have all seen significant transitions to online mediums over the last decade and we believe that we are still in the early stages of this digital transformation.

This shift in global behavior is typically dominated by large scale companies that tend to be first when bringing a new service or product to market. These companies tend to have the resources to evolve, transform, and acquire as technology changes and consumer demand alters. The majority of these companies provide comprehensive mega‐platforms that offer consumers the bulk of the services they require with one convenient payment. As this trend develops and consumers become accustomed, these companies may have a potential advantage over others and according to Pence Capital Management, LLC, these companies are anticipated to dominate their industries.

Portfolio Composition

The portfolio aims to primarily target the communications services, consumer discretionary and information technology sectors and is broken down into the following sub-industries:

  • Consumer Electronics

  • Data Processing & Outsourced Services

  • Interactive Home Entertainment

  • Interactive Media & Services

  • Internet & Direct Marketing

  • Internet Services & Infrastructure

  • Movies & Entertainment

  • Systems Software

  • Technology Hardware, Storage

Portfolio Selection Process


portfolio selection process chart


Portfolio Objective

This unit investment trust seeks above-average capital appreciation; however, there is no assurance the objective will be met.

About Pence Capital Management, LLC

Pence Capital Management, LLC is a registered investment advisory firm based in Newport Beach, California. The firm uses its proprietary research to identify and deliver actionable investment insights. The firm is led by Colonel (ret.) E. Dryden Pence III, a Harvard-educated economist with decades of experience in the financial industry. His formal training and knowledge in economics combined with his career of more than 26 years in Army Intelligence, Special Operations and Psychological Warfare, gives the firm a unique understanding of human behavior and its effects on the economy and the markets. The Digital World Leaders Strategy Portfolio is based on the firm’s expertise in portfolio construction.


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.

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 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.

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 and developing 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.

Certain of the securities held by the trust are non-Chinese shell companies structured as variable interest entities (VIEs), which provide economic exposure to Chinese companies but do not represent a direct investment in the Chinese company. VIEs are not formally recognized under Chinese law and intervention by the Chinese government into the legality of the VIE structure could negatively impact such securities.

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.

In February 2022, Russia invaded Ukraine which has caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, 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 COVID-19 global pandemic and the ensuing policies enacted by governments and central banks have caused and may continue to cause significant volatility and uncertainty in global financial markets. While the U.S. has resumed “reasonably” normal business activity, many countries continue to impose lockdown measures. Additionally, there is no guarantee that vaccines will be effective against emerging 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.

 

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Fund Cusip Information
30329N746 (Cash)
30329N753 (Reinvest)
30329N761 (Cash-Fee)
30329N779 (Reinvest-Fee)
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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