Monday, April 20, 2009

UIT's What's to Like?

I cannot count the number of times I look at a new client's old portfolio and say, "huh?" So often it is a collection of hot tips long since forgotten or a broker recommendation with the fingerprints of his manager's need to sell a new offering. This morning I found a Unit Investment Trust for Africa and the Middle East in a small client's portfolio that recently transferred in. Huh? I called to ask her why. Because he thought it was a good idea. Right. Put a middle aged american woman into a ten percent "horn of africa fund"? Sounds like a broker arbitration to me. Regardless, what was done was done.

But lets look at UIT's in general. What are they? What is their benefit? Unit Investment Trusts are unmanaged funds of a portfolio of stocks or bonds. There have been Dogs of the Dow UIT's, technology UIT's, healthcare UIT's. In principal that's not a bad thing. You get diversification. But are there other ways of achieving that for lower cost with better control and liquidity.

UIT's are created by a sponsor, in this case it was Claymore. They are not traded on any exchange and the constituent shares within the UIT must be physically delivered when sold. For that reason when I sold this morning the settlement date is seven days from now, with no price visibility and to add insult to injury, a deferred sales commission. In an investment Yemani qat production, consider a different method.

John Barnyak