Leisure & Entertainment Portfolio, Series 5

Leisure and entertainment refers to those activities or services that provide relaxation and enjoyment. There are several categories that fall under this industry some of which include: gaming, hospitality, movies, music, restaurants and tourism. Over the past several years there has been a shift in regards to personal-consumption expenditures where consumers are increasingly focused on desirable experiences, not desirable products.

Consider the following

  • On an average day in 2019, approximately 95% of Americans aged 15 years and over were engaged in some type of leisure activity. On average, adults 75 years and over spent 7.7 hours per day engaged in leisure activities which represents more than any other age group.1

  • In 2019, U.S. casinos experienced a record-setting year with nationwide consumer spending on casino gaming reaching the highest-ever annual total of $43.61 billion, an increase of 3.7% over 2018. Since the recession in 2009, the casino industry has grown every year but one.2

  • According to the U.S. Travel Association, leisure travel accounted for 80% of all U.S. domestic travel in 2019. In addition, the total number of American jobs supported by the travel industry was 15.8 million.

  • 1 U.S. Bureau of Labor Statistics
    2 American Gaming Association


Not FDIC Insured • Not Bank Guaranteed • May Lose Value

The Baby Boomer Influence

As baby boomers age, the leisure and entertainment choices they make may change along with them. They may become less likely to participate in physically demanding sports. Instead, we anticipate that activities such as golf, travel, gambling and less physically demanding activities will grow in popularity among baby boomers. According to Pew Research Center, between 2011 (when the oldest baby boomer reached age 65) and 2029 (when the youngest baby boomer turns age 65), roughly 3.8 million baby boomers are expected to turn 65 each year, or about 10,000 daily.

Portfolio Selection Process

An initial universe of stocks is created by selecting leisure & entertainment stocks that have adequate liquidity for investment. The following industries are included: airlines, cable & satellite, casinos & gaming, consumer electronics, hotels, resorts & cruise lines, interactive home entertainment, interactive media & services, internet & direct marketing retail, leisure facilities, leisure products, movies & entertainment, restaurants, internet based ride sharing services.

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 competitive advantages, new products 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 equally weighted leisure & entertainment stocks.

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.

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 both the communication services and consumer discretionary sectors which involves additional risks, including limited diversification. The companies engaged in the communication services sector are subject to rapidly changing technology, rapid product obsolescence, loss of patent protection, cyclical market patterns, governmental regulation, evolving industry standards and frequent new product introductions. Certain companies may be particularly susceptible to cybersecurity threats, which could have an adverse effect on their business. The companies engaged in the consumer discretionary industry are subject to global competition, changing government regulations and trade policies, currency fluctuations, and the financial and political risks inherent in producing products for foreign markets.

General risks of the leisure and entertainment industries include the general state of the economy, increased governmental regulation, cyclical market patterns, intense competition and consumer spending trends. A decline in the economy which results in a reduction of consumers’ disposable income can negatively impact consumer spending habits.

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.

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.