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Innovative Transaction & Process Portfolio, Series 4

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 blockchain adoption.
  • 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.

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 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 operating performance.

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 manipulation.

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.

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.

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.

Fund Cusip Information
30310M269 (Cash)
30310M277 (Reinvest)
30310M285 (Cash-Fee)
30310M293 (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 and the Internal Revenue Code. First Trust has no knowledge of and has not been provided any information regarding any investor. Financial advisors must determine whether particular investments are appropriate for their clients. First Trust believes the financial advisor is a fiduciary, is capable of evaluating investment risks independently and is responsible for exercising independent judgment with respect to its retirement plan clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
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