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Innovative Financial And Technology Portfolio, Series 2

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 gradually shifting to digital payments. 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 ensuring sustainability.

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

  • Early in the COVID-19 pandemic, many FinTech firms in the retail brokerage space recorded some of the highest usage numbers as the market experienced extreme volatility.1

  • The current perception of using cash as a vehicle to spread coronavirus could potentially change how consumers choose to pay in person now and in the future. This could promote the adoption of using digital payments.2

  • A survey taken in 2018 revealed that cash represents approximately 79% of the payment methods used in the U.S.3

  • According to Statista, mobile POS payment users worldwide reached 294.2 million in 2017 and is anticipated to reach approximately 1745.9 million by 2024.

  • Gartner forecasts worldwide IT spending to total approximately $3.5 trillion in 2020.

1 The Financial Brand
2,3CNBC

Portfolio Objectives

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 Technology 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.

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 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

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.

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 recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December 2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession.

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.

 
Fund Cusip Information
30316B747 (Cash)
30316B754 (Reinvest)
30316B762 (Cash-Fee)
30316B770 (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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