Investing in UITs

You may be familiar with the most common types of investment companies — mutual funds and exchange-traded funds (ETFs) — but how much do you know about a third type: unit investment trusts (UITs)? They are structured differently and offer unique features that may be appealing to some investors.

A Fixed Portfolio

A UIT purchases a portfolio of stocks or bonds and sells shares of the portfolio — called “units” — to individual investors. Once the investments are selected, the portfolio is generally designed to be fixed, with a specified termination date, thus offering investors a relatively clear picture of its holdings throughout the life of the investment. All UIT dividend and interest payments are distributed as they are received and typically can be reinvested. Distri­butions are not guaranteed.

When a UIT reaches its termination date, the trust is dissolved and proceeds are paid to investors. The sponsor may offer investors the opportunity to roll over the proceeds to a new UIT on a tax-deferred or non-tax-deferred basis, depending on the structure.

At the end of Q2 2020, there were 4,471 UITs holding $69 billion in assets. The number of UITs based on their underlying securities are: stocks: 2,346 UITs; tax-free bonds: 1,579 UITs; taxable bonds: 546 UITs.

Laddering Investments

Working with defined termination dates could be useful in staggering investments, similar to building a bond ladder with individual bonds. Bond-based UITs typically hold a varied portfolio of bonds with maturity dates that coincide with the trust termination date, so investing in bond UITs with different termination dates may provide an opportunity to reinvest assets at different times within a changing interest-rate environment. Stock-based UITs might offer a similar opportunity to reinvest under varying market conditions.

Most UITs issue only a specific, fixed number of units, but some trust sponsors maintain a secondary market where outstanding units can be bought and sold. If you’re interested in adding a unit investment trust to your portfolio, be sure that you understand the underlying investments, the termination date, and other provisions.

The return and principal value of UITs, stocks, bonds, mutual funds, and ETFs fluctuate with changes in market conditions. When sold, UIT units, stock and mutual fund shares, and bonds redeemed prior to maturity may be worth more or less than their original cost. UITs might carry additional risks, including the potential for a downturn in the financial condition of the issuers of the underlying securities.

UITs, ETFs, and mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company and the underlying investments, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Solon Financial Group
6200 SOM Center Rd. B21 Solon, OH 44139
Phone: (440) 519-1838, (866) 517-7302 Fax: (440) 519-1878

Securities and advisory services offered through Cetera Advisors LLC, member FINRA, SIPC. Cetera is under separate ownership from any other named entity.

6200 SOM Center Rd, B21, Solon, OH 44139

Individuals affiliated with this broker/dealer firm are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisors LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisors LLC site at www.ceteraadvisors.com

 

The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

We are licensed to sell Insurance Products in OH,PA.

[ Online Privacy Policy | Important Disclosures | Business Continuity | Privacy Promise | Order Routing Disclosure | Cetera Advisors ]