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.

First « 1 2 » Next
To read more stories , click here