A UIT is an investment company which purchases a fixed portfolio of stocks, bonds or other securities and held for a specific period of time until a pre-determined termination date, at which time the portfolio will dissolve. These trusts typically range from 1 to 30 years depending on the type of holdings in the portfolio. Equity trusts will usually be held for 1 to 5 years and fixed income trusts can be held upwards of 30 years, or in some cases, longer.
Like mutual funds, UITs issue redeemable shares (otherwise referred to as units), and like closed-end funds, they typically issue a specific, fixed number of shares of the portfolio. Like exchange traded funds, the portfolios are unmanaged.
Unlike mutual funds, closed-end funds or exchange traded funds, UITs have a preset termination date which could be based on the portfolio’s underlying investments and/or the unit investment trust’s investment goals.
UITs may be suitable for a wide range of investors, whether they’re conservative (risk averse), aggressive (risk seeking), or somewhere in the middle.
There are two main categories of UITs: equity (stock) trusts and fixed income (bond) trusts that follow a buy-and-hold strategy with a specific investment objective. Fixed income UITs seek to provided taxable or tax-free income, while equity trusts seek to provide capital appreciation and/or dividend income.
Both types will follow a defined investment strategy which may be quantitative, sector or geographic focused, thematic, market-cap or style driven, income focused, or provide a specific asset allocation.
The fees and expenses of a UIT may include an initial sales charge, a deferred sales charge, a creation and development fee, organizational costs, and an annual trust operating expense and may vary buy account type. The prospectus of each issue includes a fee table that lists investor fees and expenses. Please refer to the prospectus for specific fee and expense information.
Price and performance for unit investment trusts is not widely available when compared to mutual funds, closed-end funds, or exchange traded funds. Whereas mutual funds, closed end funds, and exchange traded funds all have widely available public performance data that is tracked, evaluated and benchmarked by such firms as Morningstar, Lipper, or Value Line, there is no such publicly available performance measurement or ratings for unit investment trusts.
Since many UITs may have short lifespans (15 month or 2 years), it is difficult to measure actual long-term performance history of a UIT strategy.
A UIT offers daily liquidity. UITs are required by law to allow investors to redeem their units on any business day at the redemption or liquidation price, which is based on the current market value of the underlying securities and may be more or less than the original purchase price.
An investor can redeem units of the UIT back to the sponsor any time prior to the trust’s termination for their net asset value (based on the value of the underlying securities) less any remaining deferred sales charges. The proceeds from the redemption will normally be credited to the investor’s account two business days after the sale.
Unit holders have different options when the UIT terminates. The most common include depositing cash proceeds into their accounts or reinvesting in another UIT, also known as a rollover. UIT sponsors generally offer a successive series of each UIT that coincides with a prior series termination allowing an investor to reinvest or purchase a successive series of a UIT with the same objective or strategy. This new series will have a new portfolio selected to meet the investment objective. Investors may also reinvest the termination proceeds from a UIT into a unit investment trust with a different investment strategy.
UIT Investing created customized algorithms to produce research for the UIT structure only. The algorithms utilize a defined process to re-create an invested return of a strategy based on the rollover process that traditional investors typically follow when investing in a UIT strategy for long periods of time and over multiple series of the strategy. This process provides an actual invested return of a strategy over 3, 5, or 10 year time periods. Utilizing the same data, the research also provides commonly used risk metrics for investment analysis.
We rate each UIT in three distinct categories, performance, risk, and expenses. Further, we also rate each UIT over time providing three-, five- and ten- year rankings if available. Our ratings are data driven and quantitative. The process relies on a combination of advanced computing, complex algorithms, and sophisticated software.
The scores of each rating category is converted to a percentage of the total score possible for that particular category and converted to a rating. The final score is converted to a percentage of the total score possible for the overall rating.