Innovative Transaction & Process Portfolio, Series 3
The Innovative Transaction & Process Portfolio is a unit investment trust which invests in companies that are actively investing resources for products or services involving blockchain technology. The
objective of the portfolio is above-average capital appreciation; however, there is no assurance the objective will be met.
What Is Blockchain
Simply put, blockchain is a decentralized database or digital ledger that keeps a continuously growing list of data records or transactions (blocks) that occur on a peer-to-peer (P2P) network. It is kept
and validated simultaneously by a network of computers, similar to a shared spreadsheet, that no one person can change without the agreement of others. It allows a buyer and seller to interact directly
without the need of a third-party to transfer goods or information. Blockchain is increasingly being used to support transactions that have required a third party or central database in the past. The
blockchain enables visibility of all activities, including where an asset is located and who owns it at any point in time. Blockchain is the technology that underpins digital currencies, like bitcoin, but it
has many uses with the potential to move data swiftly and securely, while making a permanent record that is instantly available and nearly impossible to tamper with.
Potential Benefits Of Blockchain Technology
Nearly every major financial institution has been exploring blockchain technology, but its applications span a wide range of industries. Some potential applications include preventing voter
fraud, improving government efficiency, expediting health care claims and improving supply chain traceability.
- Efficiency | As transactions are completed directly between parties with no intermediary and with digitized information, settling transactions can be quick, with less potential for human error.
- Auditability | Blockchain technology provides an indelible audit trail for the life of an asset as each transaction is recorded sequentially and indefinitely.
- Transparency | Blockchain technology is a transparent and efficient way to reduce delays from paperwork and may increase trust between business partners and clients.
- Security | As transactions can be verified within the network using independently verified complex cryptography (sophisticated code), the authenticity of the information can be assured,
reducing the risk of a centralized organization being hacked at the expense of everyone who relies on that entity.
Why Consider The First Trust Innovative Transaction & Process Portfolio?
- Provides an easy way to gain exposure to various companies that have devoted material resources to the use of blockchain technology.
- A growing number of industries and institutions are looking to embed blockchain technology into their day-to-day processes and may be poised to benefit from continued acceleration of
- Although the full spectrum of blockchain technology applications is still being explored to make conducting business safer and more efficient, the technology has proven useful in multiple applications.
- As companies continue to experiment with new ways to harness the potential benefits of this new technology, we believe significant growth opportunities could develop.
Portfolio Selection Process
The Innovative Transaction & Process Portfolio invests in companies selected from the Indxx Blockchain Index. The Indxx Blockchain Index tracks the performance of exchange-listed
companies across the globe that are poised to benefit from blockchain technology.
Universe | Indxx constructs the Indxx Blockchain Index beginning with a
universe of eligible companies in developed or emerging market countries.
Eligibility Criteria | Each security must have a minimum market cap of
$250 million, three-month average daily turnover value of at least $1 million and
minimum free float of 20%. Companies that have not traded on at least 90% of the
eligible trading days in the last six months (three months for securities with less
than six months of trading history) are removed. Companies trading at a price of
$10,000 or above per share are removed.*
Security Classification | All eligible securities are analyzed by Indxx and
classified into three tiers based on their exposure to blockchain technology and/or
the potential to benefit from the increased process efficiency it could provide.
Security Selection and Weighting | The securities are selected for the
Innovative Transaction & Process Portfolio from the companies Indxx includes in
tier one, a classification called active enablers. Active enablers are those companies
that are actively developing blockchain technology products or systems for their
own internal use and for the sale and support of other companies; companies that
are direct service providers for blockchain technology; or companies that have
business models that rely on delivering products or services that use blockchain
technology. Companies are approximately equally weighted within the portfolio.
*This rule does not apply to existing index constituents.
| 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 advisor
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 information technology sector which involves
additional risks, including limited diversification. 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
Blockchain technology is an entirely new and relatively
untested technology and may never be implemented to a scale
that provides identifiable economic benefit to the companies
included in the portfolio. Blockchain systems could be
vulnerable to fraud. There is little regulation of blockchain
technology and because blockchain technology systems may
operate across many national boundaries and regulatory
jurisdictions, it is possible that it may be subject to widespread
and inconsistent regulation. The values of the companies
included in the portfolio may not be a reflection of their
connection to blockchain technology, but may be based on
other business operations. Currently, blockchain technology is
primarily used for the recording of transactions in digital
currency, which are extremely speculative, unregulated and
volatile. Because digital assets registered in a blockchain do not
have a standardized exchange, like a stock market, there is less
liquidity for such assets and greater possibility of fraud or
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
Certain securities held by the portfolio are issued by companies
in Europe. The United Kingdom vote to leave the European
Union and other recent rapid political and social change
throughout Europe make the extent and nature of future
economic development in Europe and the effect on securities
issued by European issuers difficult to predict.
Certain securities held by the portfolio are issued by companies
in the Asia Pacific region, making the portfolio more
susceptible to the economic, market, regulatory, political,
natural disasters and local risks of the Asia Pacific region. The
region has historically been highly dependent on global trade
which creates a risk with this dependency on global growth.
The stock markets tend to have a larger prevalence of smaller
companies that are inherently more volatile and less liquid
than larger companies.
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.
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.
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 cyber security.