Innovative Financial And Technology Portfolio, Series 12
Consumers are consistently expecting greater customization and personalization in their
financial services experiences. To keep up with these expectations, innovators are opening up a
more expansive vision for the financials sector. The Innovative Financial and Technology Portfolio
provides access to companies that are involved in areas that we believe are driving innovation:
Digital Payments | Consumers are continually shifting to digital payments. In fact, more than 90% of Americans used some form of digital payment in 2023, up from 82% in 2021.1 Digital payments are those that are conducted
over the Internet and mobile channels.
Financial Management Software | Effective financial management systems use software
to oversee and govern its income, expenses, and assets with the goal of maximizing profits and
FinTech | Technologies are changing how consumer needs are being addressed within finance.
New business models are being rapidly developed and deployed changing the way financial
products and transactions are used and delivered. The basic goal of FinTech is for companies and
consumers to better manage their financial operations, processes, and to simplify their lives.
Consider The Following
- According to Statista, the transaction value of mobile POS payments is anticipated to reach
nearly $3.8 trillion in 2024 and is estimated to total $6.1 trillion by 2028. In addition, there will
be a projected two billion mobile POS payment users by 2028, up from 299.4 million in 2017.
- The global financial management software market value is anticipated to reach $24.4 billion
by 2026, growing at a compound annual growth rate (CAGR) of 9% from $16.3 billion in 2021.
In addition, worldwide IT spending is anticipated to total nearly $5 trillion in 2024 and up
from an estimated $4.7 trillion in 2023, according to Gartner.
1 McKinsey & Company, October 2023
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
Portfolio Selection Process
An initial universe of Innovative Financial and Technology stocks is created by selecting those
that are innovating technology in financial services digital transformation, digital payment
technology or financial management software. All of the stocks selected trade on a U.S. stock
exchange and have adequate liquidity for investment.
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; and
technical factors such as price momentum and earnings surprises.
An estimated value is calculated for each of the companies utilizing a Cash Flow Return on
Investment (CFROI) method. A secondary valuation is also made employing a concept called
Economic Margin. The companies which currently trade at an attractive market price relative to
their estimated value are favored over companies that do not.
The final portfolio is then selected by a team of equity analysts who evaluate each stock by
examining the stock’s relative valuation and other qualitative factors such as (third party) analyst
ratings, competitive advantages and quality of management.
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 30 approximately equally weighted Innovative Financial and
|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 both the financials and information
technology sectors which involves additional risks, including limited diversification. The companies engaged
in the financials sector are subject to the adverse effects of volatile interest rates, economic recession,
decreases in the availability of capital, increased competition from new entrants in the field, and potential increased regulation. 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.
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.
Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East have caused and could continue to cause significant market disruptions and volatility
within the markets in Russia, Europe, the Middle East 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 ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future 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