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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 technology sectors.

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 performing sector.

  • 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

1 emarketer
2 The Washington Post

Portfolio Objective

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. stock exchange.

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.

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.

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 qualified plan.

Fund Cusip Information
30314A683 (Cash)
30314A691 (Reinvest)
30314A709 (Cash-Fee)
30314A717 (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 advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
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