Virtual Economy Portfolio, Series 1
The lockdown of the U.S. and many economies around the world has prompted a real-time
stress test of the long-predicted digital future. Many companies have had to adapt to the
shelter-in-place work environment and some may continue to change their operations even as the
virus dissipates. The Virtual Economy Portfolio is a unit investment trust that invests in companies
that we believe will have the potential to benefit from the increased practice of people staying
at home during and even after the COVID-19 pandemic. The portfolio is mainly represented
in the communication services, consumer discretionary, consumer staples and information
Consider The Following
- Communication Services | This sector includes media and entertainment companies.
With the spread of COVID-19 in the first quarter of 2020, it is anticipated that digital media
consumption will increase as people spend more time at home. Consumption is expected to
increase across social media, over-the-top video and online gaming.1
- Consumer Discretionary | This sector has been feeling the impact of the most recent
pandemic as people cancel trips and avoid leisure activities. The sector is dominated by
companies that produce products and services that consumers often do without when they
are under financial stress or worried about the state of the economy. Prior to the COVID-19
pandemic, the U.S. labor market was strong with healthy consumer balance sheets which
may help this sector going forward.
- Consumer Staples | Consumer staples consist of food, beverages, household goods and
personal products that most consumers use on a daily basis. Purchases of these products
tend to be a relatively small portion of most consumers’ yearly income, which keeps demand
stable. Because of this stability, sales and earnings growth tend to remain fairly constant in
up or down markets. We believe consumer staples represents an attractive sector for investors
due to its non-cyclical nature and significant exposure to foreign demand. According to S&P
Dow Jones Indices LLC, in March 2020, the Consumer Staples sector was the second best
- Information Technology | Gartner forecasts worldwide IT spending to total approximately
$3.87 trillion in 2020, with the enterprise software segment spending nearly $507 billion, a
10.9% increase from 2019. The top priority for the White House is to ensure the safety and
health of the American people. It is believed that cutting edge technology companies and
major online platforms will play a crucial role in this effort. The U.S. government is actively
pursuing several technology companies about how they can use location data collected from
Americans’ phones to combat COVID-19, including tracking whether people are keeping one
another at safe distances to curtail the outbreak.2
2 The Washington Post
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 virtual economy stocks is selected by First Trust Analysts. At the time of
portfolio selection, the stocks have adequate liquidity for investment and trade on a major U.S.
Next we evaluate each stock by examining the stock’s relative valuation and other qualitative
factors such as competitive advantages, new products and quality of management.
Our selection process attempts to find the stocks with the best prospects for 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 Virtual Economy stocks.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objective, 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
One of the securities held by the trust is issued by a real estate investment trust (REIT). Companies involved in the real estate industry are subject to changes in the real estate market, vacancy rates and competition, volatile
interest rates and economic recession.
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