There’s no YOU in UIT (Unit Investment Trust)

UIT CartoonDear Mr. Market:

Have you ever bought a product or service and afterwards felt like you had been taken to the cleaners? Consumers look for superior products and they also want a great deal. Imagine buying a top of the line computer only to find out that you need to buy another one every year or two and to top of it off you have to pay a commission to the salesperson each time…who would possibly want that scenario?!

It might be a very nice computer but at what point do you question your purchase and stop the sales/commission cycle? As we’ve discussed in several of our letters to Mr. Market the financial services industry is littered with products and services that do little for the individual investor but benefit companies and commission driven brokers by lining their pockets. We’ve covered annuities, life insurance products and loaded mutual funds, but today we will look at a product that is making a come back after declining in popularity over the last few years….Unit Investment Trusts or UITs.

The name itself sounds a bit intimidating but the product itself is fairly simple and easy to understand. Essentially a UIT is a fixed unmanaged portfolio with a set maturity in the future (usually one to two years). They are comprised of equities, bonds or a combination of the two with a focus on broad market, specific strategies or sometimes sector specific. At first glance they appear very similar to a mutual fund or ETF (Exchange Traded Fund) but when you pull back the covers the differences are glaring.  Continue reading