Innovative Financial And Technology Portfolio, Series 5
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
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 coronavirus pandemic has caused a surge in demand for contactless payments. This could
potentially change how consumers choose to pay in person now and in the future and could
promote the adoption of using digital payments.2
- According to Statista, mobile POS payment users worldwide reached 298.7 million in 2017
and is anticipated to reach approximately 1,890.3 million by 2025.
1 The Financial Brand
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.
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 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.
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