UIT's
Any insight into UIT’s? I was working on a bond ladder for a prospect and I had a buddy of mine talk about UIT’s instead. For the people who do use them, how do you incorporate into the financial picture? Pros/cons? Thanks!
Use them like you would a bond. Most fixed income UITs work in two ways - laddered or not. The laddered ones do for you what you’re trying to do with your client’s money. Only you’re probably not going to buy 30 different bonds to get the job done. Use the non laddered ones to fill a gap that you’re having trouble finding a good bond.
Pros - diversification and a ready made portfolio. Easier for your client to keep track of. Cleaner statement. When I use them, I'm specifically looking for diversification that I couldn't otherwise achieve with the amount of money I want to allocate to bonds. Often you can reinvest the income if the client doesn't want to take it. They are style pure by nature. Since they're not actively managed, they don't style drift, a la Bond Fund of America Cons - sometimes a bit less income stream because you can't cherry pick the good bonds out of your inventory. Principal from bond calls normally comes back in small chunks and sometimes can get spent or absorbed elsewhere. That typically doesn't happen with an individual bond. You have zero control over the bonds that make up the UIT. Just like in bond funds. I'm sure I've missed some things. But that's a good start.[quote=Spaceman Spiff]Use them like you would a bond. Most fixed income UITs work in two ways - laddered or not. The laddered ones do for you what you’re trying to do with your client’s money. Only you’re probably not going to buy 30 different bonds to get the job done. Use the non laddered ones to fill a gap that you’re having trouble finding a good bond.
Pros - diversification and a ready made portfolio. Easier for your client to keep track of. Cleaner statement. When I use them, I'm specifically looking for diversification that I couldn't otherwise achieve with the amount of money I want to allocate to bonds. Often you can reinvest the income if the client doesn't want to take it. They are style pure by nature. Since they're not actively managed, they don't style drift, a la Bond Fund of America don't forget....monthly income!!! Huge to older retirees Cons - sometimes a bit less income stream because you can't cherry pick the good bonds out of your inventory. Principal from bond calls normally comes back in small chunks and sometimes can get spent or absorbed elsewhere. That typically doesn't happen with an individual bond. You have zero control over the bonds that make up the UIT. Just like in bond funds. I'm sure I've missed some things. But that's a good start. [/quote]Which UIT’s are you looking at? There are some that have individual bonds/securities and others that are comprised of closed-end funds.
[quote=snaggletooth]Which UIT’s are you looking at? There are some that have individual bonds/securities and others that are comprised of closed-end funds.[/quote]
Van Kampen and First Trust as a start. I appreciate the responses thus far.
They are EXPENSIVE ! 3-5% commission + admin fees. For a small this-is-all-I-have investor then maybe. For someone with 50-100k on the muni side and 25k+ on the taxable side then individual bonds make more sense.
Yes putting together a bond ladder takes some time, but call your desk and tell them what you want. Their job is to present you with a complete ladder that you can present to your client.
On the open or closed end fund side there are many choices if you choose to go that route.
UIT’s are a dinosaur. If you want active management (which UIT’s are NOT regardless of what the latest wholesaler says) buy an open ended mutual funds. If you want passive and cheap, buy an ETF. UIT’s only exist to pad the pockets of the institutions and the brokers.
UIT’s are a dinosaur. If you want active management (which UIT’s are NOT regardless of what the latest wholesaler says) buy an open ended mutual funds. If you want passive and cheap, buy an ETF. UIT’s only exist to pad the pockets of the institutions and the brokers.
I've never met a wholesaler who said that a UIT is actively managed. The reason behind a UIT is passive management. Are you drunk?
How many UIT wholesalers have you actually talked management philosophy in your year on the job?
UIT's exist for the same reason funds and ETFs exist - preference. I personally think income UITs are a great option for clients who like individual bonds, but I don't want them owning a single bond that could blow up on them. I think each investment style can have it's place in a portfolio.UIT’s are a dinosaur. If you want active management (which UIT’s are NOT regardless of what the latest wholesaler says) buy an open ended mutual funds. If you want passive and cheap, buy an ETF. UIT’s only exist to pad the pockets of the institutions and the brokers.
How many UIT wholesalers have you actually talked management philosophy in your year on the job?
Your snide remarks aren't necessary and has no purpose in this discussion. UIT's are passively managed, by definition. Oh and in my "Year on the job" i've done about $2M in UIT's. I know a little bit about them.
Depending on the size of the holdings, you might want to change your payopts screen to hold principle and interest instead of automatically reinvesting into a mutual fund.
But Merrill/UBS are actually right; I don't see any benefit to using UITS over ETFs. Other, of course, than you earning more money. Go to iShares.com, and look at how you can put together a fairly diversified income portfolio with no managing fees and lower initial cost to the client. It will cost the client significantly less in an arena where costs are imperitive.Lmao, please accept my deepest apologies, Mass'a![quote=3rdyrp2] How many UIT wholesalers have you actually talked management philosophy in your year on the job?[/quote]
Your snide remarks aren’t necessary and has no purpose in this discussion. UIT’s are passively managed, by definition. Oh and in my “Year on the job” i’ve done about $2M in UIT’s. I know a little bit about them.
UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[quote=vbrainy]UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[/quote] Your post doesn't make sense. If you roll the entire investment over, it doesn't matter how many shares you own. Your percentage gain after rolling the money is the same for 180 shares at $10/share as it is for 200 shares at $9/share.An attempt at a feeble argument. Let's compare some fee structures: Mutual Fund Wrap Account = 1-1.25% wrap fee + .50-1% fund expense. Total = 1.50-2.25% ballpark. Mutual Fund C Share = 1.50-2% or more ETF Wrap Account = 1-1.25% wrap fee + .60% etf expense. Total = 1.60-1.85%. UIT's by commission = 3.95% for 2 years or 1.975% per year. The 3.95% does come out over the first 6 months. UIT's in fee based account = 1-1.25% wrap fee + .50% UIT expense. Total = 1.50-1.75%. Now, if you buy a UIT that holds closed-end funds, then you need to add that fee. But if they own individual securities, those costs are all in. So I am a little confused about how "They are EXPENSIVE!". Or did you just not do your homework?They are EXPENSIVE ! 3-5% commission + admin fees. For a small this-is-all-I-have investor then maybe. For someone with 50-100k on the muni side and 25k+ on the taxable side then individual bonds make more sense.
Yes putting together a bond ladder takes some time, but call your desk and tell them what you want. Their job is to present you with a complete ladder that you can present to your client.
On the open or closed end fund side there are many choices if you choose to go that route.
[quote=vbrainy] UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
Most of what i’ve sold are Fixed Income UIT’s and those (atleast at Jones) are priced and sold just like a bond. A client see’s it on a statement just like a bond, Long Term.
[quote=snaggletooth][quote=vbrainy]UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[/quote] Your post doesn't make sense. If you roll the entire investment over, it doesn't matter how many shares you own. Your percentage gain after rolling the money is the same for 180 shares at $10/share as it is for 200 shares at $9/share.[/quote]
snags - ignore vbrainy - he's useless.
ETFs do take UIT business, however only one has a par value or call value… That can be very imp to some people.
[quote=snaggletooth][quote=vbrainy]UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[/quote] Your post doesn't make sense. If you roll the entire investment over, it doesn't matter how many shares you own. Your percentage gain after rolling the money is the same for 180 shares at $10/share as it is for 200 shares at $9/share. [/quote] Actually, vbrainy is right if he is referring to bond UIT's. Let's say you buy a UIT (for simplicity sake) it has 10 shares at $10/ea., for a $100 total. It kicks off a 5.5% coupon. Let's ignore commissions right now, as it is unimportant to this argument. If you sell that UIT when the internal bond prices are at $9.00, you will get $90 back, and can now only buy $90 worth of bonds. But that original $90 (you bought for $100) was still kicking off $5.50/year. If you re-invest the $90, you now need a yield of 6.1% to get the same $5.50. You must also pay another commission. Now, it may be that the prices dropped because rates have risen, and you MAY be able to reinvest at a higher coupon. But after commissions, that may not happen. So I don't think Vbrainy is way off here.[quote=B24][quote=snaggletooth][quote=vbrainy]UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[/quote] Your post doesn't make sense. If you roll the entire investment over, it doesn't matter how many shares you own. Your percentage gain after rolling the money is the same for 180 shares at $10/share as it is for 200 shares at $9/share. [/quote] Actually, vbrainy is right if he is referring to bond UIT's. Let's say you buy a UIT (for simplicity sake) it has 10 shares at $10/ea., for a $100 total. It kicks off a 5.5% coupon. Let's ignore commissions right now, as it is unimportant to this argument. If you sell that UIT when the internal bond prices are at $9.00, you will get $90 back, and can now only buy $90 worth of bonds. But that original $90 (you bought for $100) was still kicking off $5.50/year. If you re-invest the $90, you now need a yield of 6.1% to get the same $5.50. You must also pay another commission. Now, it may be that the prices dropped because rates have risen, and you MAY be able to reinvest at a higher coupon. But after commissions, that may not happen. So I don't think Vbrainy is way off here.[/quote] Right, but the theory is that if you roll it over when prices are down, yields will be up, and vice versa. If you're talking about individual bond UIT's, you hold them to maturity and you get $100 back. Any of the individual bond UIT's I've looked at are 5 year max maturities with bonds coming due in different years. I haven't used them though.B24- vbrainy is wrong- the discussion was referring to to rollover every 15-24 months of non-fixed income UITs. Fixed income matures at par/call; selling early would be just like any bond. (I.E no rollover for fixed income)
New, then you are right. I thought he was referring to selling bond UIT’s.
The benefits of a UIT vs. say a Bond Fund or ETF is simply the definite nature of the holdings. An ETF or Bond Fund can and often do change their holdings so the client cannot be certain of a particular income stream. With a UIT they can be certain of that stream so that you and the client can plan for that accordingly. An ETF is cheaper if bought outside of a Wrap Account but inside of the account it may not be.
Conversely, a UIT is NOT better than a properly diversified portfolio of individual bonds, however to get the same diversification the client would need much more money as most UIT's I review (on the fixed income side) have at least 25 different individual bonds. So the pro's are monthly income stream that is predictable, diversified portfolio with lower capital requirements and professional selection criteria (not professional management). The Con's are that a well captialized investor can do just as well or better if they have a higher $$ figure to invest. In truth, if you want to keep your total portfolio holdings in proper allocation models, then the investor would have to be very well capitalized given that you wouldn't want any one of the 30 or so bonds to be more than 7-10% of their individual holdings. Equity UIT's are a bit different as they can be replicated at a lower cost than Fixed income UIT's and usually have a 15 month time frame or there about vs. a much longer time frame than Fixed Income UIT's. I believe they are more subsitutes for C share MF holders who like to turn their investments more vs. the longer term A share investor.[quote=snaggletooth][quote=B24][quote=snaggletooth][quote=vbrainy]UIT holders can be very severly impacted in down markets. Unlike a mutual fund, when it is time to roll over, you only roll over the amount of money and usually buy shares at $10 a pop.
So, if you owned 200 shares and paid $2000 the market declines 10% you now have $1800 to rollover. not 200 shares. watch out there grasshopper.[/quote] Your post doesn't make sense. If you roll the entire investment over, it doesn't matter how many shares you own. Your percentage gain after rolling the money is the same for 180 shares at $10/share as it is for 200 shares at $9/share. [/quote] Actually, vbrainy is right if he is referring to bond UIT's. Let's say you buy a UIT (for simplicity sake) it has 10 shares at $10/ea., for a $100 total. It kicks off a 5.5% coupon. Let's ignore commissions right now, as it is unimportant to this argument. If you sell that UIT when the internal bond prices are at $9.00, you will get $90 back, and can now only buy $90 worth of bonds. But that original $90 (you bought for $100) was still kicking off $5.50/year. If you re-invest the $90, you now need a yield of 6.1% to get the same $5.50. You must also pay another commission. Now, it may be that the prices dropped because rates have risen, and you MAY be able to reinvest at a higher coupon. But after commissions, that may not happen. So I don't think Vbrainy is way off here.[/quote] Right, but the theory is that if you roll it over when prices are down, yields will be up, and vice versa. If you're talking about individual bond UIT's, you hold them to maturity and you get $100 back. Any of the individual bond UIT's I've looked at are 5 year max maturities with bonds coming due in different years. I haven't used them though.[/quote] Thank you. Finally someone who can do basic math.Source URL:https://www.wealthmanagement.com/forums/rookies-trainees/uits