Volatility in the market has returned, and today’s financial advisors are back in the hot seat to provide clients with investment opportunities that not only provide high returns, but can remain steady in the midst of market turmoil. The key to finding these diamonds in the rough is good, old-fashioned research and analytics.

Research solutions are out there for packaged products such as ETFs, mutual funds and closed-end funds, but they’re simply not available for unit investment trusts (UITs). Over the years, I’ve struggled through the the process of researching and analyzing UITs, and realized the data is fragmented and, in some cases, incorrect. Further, side-by-side comparisons of historical performance, risk metrics, fees and expenses, etc. were nearly impossible to find to conduct proper portfolio analysis.

The playing field is shifting, though, and UITs are becoming more attractive investment options. The old roadblocks to detailed analysis are disappearing, which is allowing the more beneficial features of the product to shine.

Some of you may be asking yourselves, “Why should I care about UITs when I’ve never even heard of them?” Let me back up, provide an overview of UITs, and explain why I believe these investment vehicles should be more widely utilized.

What Are UITs?

UITs are one of the four major investment companies, and have similar features to ETFs, mutual funds and closed-end funds. Just like mutual funds, UITs have a diversified portfolio, but UITs are passive and fixed, rather than active. They trade once a day, and issue only a certain amount of shares. They’ve been around since 1961, but because of a lack of data and the fact that the UIT universe is relatively small (5,035 trusts in the United States with a value of $84.94 billion, according to Investment Company Institute (ICI) data), they haven’t seen the same amount of attention or utilization.

Traditionally, UITs hold a range of investments. Short-, mid-, and long-term bonds are popular, but they also include common stocks, ETFs, closed-end funds, real estate investment trusts (REITs) and master limited partnerships (MLPs). You typically won’t see a lot of exotic stuff within UITs. However, depending on the risk profile of an investor, there’s something for everyone. You’ll find UITs that hold all blue-chip securities (Mega-Cap Portfolio), all investment-grade bonds (Investment Grade Corporate Trust) or aggressive UITs that hold more risk but potentially more reward.

What Are The Risks Of UIT Investments?

Just like any other investment, UITs carry risk. However, they can be pretty diversified, which generally should reduce risks. According to a whitepaper from the ICI, the performance of a UIT is typically based on the price changes of the securities within its holdings, in addition to the reinvestment of any income and distributions the UIT receives from its securities.

UITs don’t charge management fees, as they are passive investments. While their overall fees may be higher than your standard ETFs, many cost less than mutual funds and are right around the same prices as most smart-beta ETFs. UIT investors can expect sales charges for brokerage accounts that are typically 1.85 percent for a 15-month portfolio to 2.85 percent for 2-year portfolio. Fee-based accounts do not charge a transactional sales fee.

What’s The Potential Of UITs?

As you can see, UITs are an attractive investment opportunity, but many financial advisors simply don’t have enough information to take advantage of them. Below is a list of benefits advisors can get excited about when digging deeper into UITs:

• Greater Transparency: One of the elements that makes UITs especially intriguing is their transparency. In 2008, investors didn’t really know what they were invested in, which, as we all saw, didn’t turn out well. UITs have a fixed portfolio, are extremely transparent on holdings and what they are buying, and only change under extreme circumstances, so advisors and investors won’t be surprised when they look into what they own. As they are professionally selected and prices are determined by the security values, it’s easy to evaluate them.

• Increased Research: Up until now, UITs haven’t taken off because there is not a lot of accurate, consolidated research and standardized data available for advisors to do their homework, and there have been limited resources to evaluate the investment as a long-term strategy. Having that information is crucial to the success of any investment, as evidenced by mutual funds and ETFs, which began to skyrocket in popularity when companies like Morningstar began providing research and ratings. Those unfamiliar with UITs may think they look similar to mutual funds, but when you get into the weeds, they’re constructed entirely differently. Now, with better data and tools to understand and evaluate UITs, there is an opportunity for advisors to increasingly utilize them within their passive strategies, which makes UITs far more viable.

• Thematic Opportunities: UITs touch on so many different strategies and sectors, similar to ETFs. However, where UITs that might be able to provide alpha are those that utilize a thematic allocation strategy. ETFs will often have hundreds of securities within their holdings, but with UITs, you can create an investment product with 10-15 stocks based upon a specific trend. One example is the First Trust’s Sabrient Baker’s dozen, which packages a list of 13 stocks that are believed to be undervalued and likely to appreciate. Thematic UITs are nimble and precise enough to capture those securities and only those securities.

The Case For UITs

I like to think of UITs as adding value through “addition by subtraction.” When evaluating other packaged products, you might find that one has 100, 200 securities in it, but it’s unrealistic to think each one of them is going to be great. UITs present the opportunity to get rid of the securities that are underperforming.

With the DOL fiduciary rule around the corner, it’s imperative that advisors have the data and resources to justify their investments. As you know, every client has a very different risk profile, time horizon, and set of individual needs and investment goals. To make sure you’re providing the best possible investment service, you need to know everything you can about what you’re investing in. Adding UITs into the mix could present financial advisors with a supplemental strategy to increase returns, diversify portfolios and keep clients happy.

Randy Watts is co-founder and CEO of UIT Investing Inc.