A unit investment trust, like its investment company brethren, buys and holds a portfolio of stocks, bonds or other securities. Bond investors in particular may be interested in UITs, but many advisors overlook them. A Chicago-based firm wants to make UITs more accessible to advisors and their clients.
UIT Investing, a Chicago-based firm co-founded in 2017 by brothers Randy and Paul Watts, last week launched what it called the first dedicated unit investment trust (UIT) research platform designed for advisors and the public.
When this reporter admitted in an interview with the brothers that he knew far less about UITs than mutual funds, ETFs and closed-end funds, and that perhaps many advisors also were less than informed about UITs and their place in client portfolios, UIT Investing CEO Randy Watts agreed, saying, “You hit the nail on the head.”
While UITs existed before ETFs and closed-end funds and are one of the four types of U.S.-Registered Investment Companies (RICs), “nobody knows much about them because of the lack of data and analytics,” said Watts. “That’s one of the problems we’re hoping to solve” with UIT Investing’s offering, arguing that much of the growth among ETFs and closed-end funds came from the amount of data available to advisors and end-investors.
Investment Company Institute data shows that the UIT universe is relatively small; there were 5,035 trusts in the U.S. with a value of $84.94 billion as of year-end 2017. By contrast, ICI reported that there were 1,856 ETFs with assets of $3.47 trillion as of January 2018; for mutual funds, as of the same date ICI said there were 7,988 mutual funds with net assets of $19.32 trillion. ICI’s latest data (as of June 2017) showed there were 533 closed end funds with assets of $271 billion.
With his experience launching new UIT series and building UIT infrastructures at firms like Van Kampen, Nuveen and InCapital, Randy Watts says with authority that “Investments are driven by research,” and he believes that providing the UIT research in an easy-to-use, affordable online format will help “grow the structure” and UIT investments among advisors.
The majority of UIT usage has traditionally come from commission-based advisors in the wirehouse and regional broker-dealer channels, but Watts notes that “we’re slowly seeing a shift to the advisory channel; that’s where the market is going.” Specifically, that growth is in wrap programs and rep-as-portfolio accounts, says Watts, to the point that usage is now “50% wrap; 50% wirehouse.”
How Do UITs Work?
Unlike a mutual fund or ETF, a UIT is closed-ended — stocks and bonds within the fund are not typically not traded, and the UIT has a maturity date, at which point its assets are distributed among investors. While there are stock and bond UITs, stock investors often prefer mutual funds or ETFs.
Are UITs a Good Investment?
What are the benefits of UITs to end investors? Randy Watts says the “the number 1 benefit” is the transparency of the UIT. “Every investor knows exactly what they own in the UIT,” when a UIT is launched, and the holdings don’t change until the trust reaches maturity (there are some exceptions to that rule, such as when a company in the trust goes bankrupt).