Electric and Future Vehicle and Technology Portfolio, Series 3
The automobile industry is undergoing fundamental transformations as consumers shift away
from traditional fuel-powered vehicles to all-electric and hybrid electric vehicles. With the price
of gasoline near record highs; an increasingly global focus on sustainability concerns around
oil dependence; advances in the technologies behind vehicle and battery materials to improve
drivable range; and growing access to vehicle charging stations via infrastructural initiatives, there
may be continued demand for electric and autonomous vehicle technologies as these innovative
technologies grow and evolve. This unit investment trust (UIT) provides exposure to companies
that are engaged in the development and sales of electric and autonomous vehicle technologies.
Consider The Following
- The global electric vehicle (EV) market size is expected to reach $1 trillion by 2026 with a
compound annual growth rate (CAGR) of more than 23% from 2021-2026.1
- In 2021, new EV sales in the U.S. nearly doubled that of 2020 reaching 608,000, 73% of which
were all-electric vehicles.2
- The worldwide transition from internal combustion engines (ICE) to low-emission vehicles is
increasing. By 2040, EVs are projected to account for approximately 54% of global new car sales.3
1 Statista - February 2022
2 U.S. Department of Energy - 3/1/22
3 Arcadis, Global Electric Vehicle Catalyst Index 2021
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
Portfolio Selection Process
The initial universe of stocks is selected from an initial universe of Electric and Future Vehicle
companies and Technology companies in the S-Network Electric & Future Vehicle Ecosystem Index
as well as other companies that have devoted material resources or made material commitments
to the development and sale of electric and autonomous vehicle technologies.
Next, we examine the historical financial results of the stocks from the initial universe. The
stocks are then evaluated using fundamental factors such as sales, earnings and cash flow
growth; valuation factors such as price/earnings, price/cash flow, price/sales and price/book;
technical factors such as price momentum and earnings surprises; and qualitative factors such as
competitive advantages, new products and quality of management.
An estimated value is calculated for each of the companies utilizing a Cash Flow Return on
Investment (“CFROI”) method. The CFROI method compares an estimate of a company’s internal
rate of return against an estimate of a company’s cost of capital. Companies that generate returns
in excess of their capital costs are favored over companies that do not. A secondary valuation
is also made employing a concept called Economic Margin (“EM”). EM measures the return a
company earns versus its cost of capital to determine if a company is generating wealth. The
companies which currently trade at an attractive market price relative to their estimated value
are favored over companies that do not.
After considering the above factors together, equity analysts make a final determination and
select the stocks with the best prospects for above-average capital appreciation by identifying
those that meet our investment objective, trade at attractive valuations, and, in our opinion, are
likely to exceed market expectations of future cash flows.
The final portfolio consists of 25 approximately equally weighted stocks.
| Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, 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 the consumer discretionary sector
which involves additional risks, including limited diversification. The companies engaged in the consumer
discretionary sector are subject to global competition, changing government regulations and trade policies,
currency fluctuations, and the financial and political risks inherent in producing products for foreign markets.
The automotive industry can be highly cyclical, and companies in the industry may suffer periodic operating
losses. The industry can be significantly affected by labor relations and fluctuating component prices. While
most of the major automotive manufacturers are large companies, others may be non-diversified in both
product line and customer base and may be more vulnerable to events that negatively impact the industry.
Electric vehicle technology is a relatively new technology and is subject to risks associated with a developing
industry including intense competition, delays or other complications with production, rapid product
obsolescence, increased government regulation, market volatility, and uncertainty of the ability of new
products to penetrate established industries, among other factors. Many electric vehicle companies are
heavily dependent on patent protection, and the expiration of a company’s patent may adversely affect that
company’s profitability. Electric vehicle companies are also subject to competitive forces that may result in
price discounting, may be thinly capitalized and susceptible to product obsolescence.
Under normal circumstances, the Trust will invest at least 80% of its assets in Electric and Future Vehicle companies and Technology companies. Electric and Future Vehicle
companies are companies that are principally engaged, i.e., have at least 50% of their assets in, or derive at least 50% of their revenues or profits from, one of the following business segments: (1) electric and autonomous
vehicle manufacturing; (2) electric and autonomous vehicle enabling technologies (i.e., companies that manufacture batteries for energy storage, provide the sensors for autonomous driving capabilities and manufacture
semiconductors); (3) electric and autonomous vehicle enabling materials (i.e., companies that mine rare earth metals used for energy storage and conversion); and (4) the development and manufacture of future automotive
technology and products. Technology companies are companies that are principally engaged, i.e., have at least 50% of their assets in, or derive at least 50% of their revenues or profits from, the information technology sector.
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.
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 has caused significant volatility and declines in global financial markets, causing losses for investors. The development of vaccines has slowed the spread of the virus and allowed for the
resumption of “reasonably” normal business activity in the United States, although 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.
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.
S-Network and S-Network Electric & Future Vehicle Ecosystem Index are service marks of S-Network Global
Indexes, Inc. (collectively, with its affiliates “S-Network”) and have been licensed for use by First Trust
Portfolios L.P. The portfolio is based on the S-Network Electric & Future Vehicle Ecosystem Index and is not
sponsored, endorsed, sold or promoted by S-Network and S-Network makes no representation regarding the
advisability of trading in such product.