UIT's

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Jan 26, 2009 4:30 pm

Anyone use them much?  With inventories thinning these days, I have started looking at some fixed-income UIT products, which I had never really looked at before.  Just curious pros/cons of fixed income UIT's.

Jan 26, 2009 4:38 pm

pros: you hold the securities in the trust until maturity.

 cons: its passive so if those holdings blow-up, they continue to be held in the portfolio.
 
 
Jan 26, 2009 4:51 pm

The major con for me is that you're still paying a premium for the bonds.   That and the clients don't really understand them.  They pay back principal once in a while and it stays on their statement forever.  It confuses them.  I've never found them to really be that competitive with the rates of a regular bond.  Jones will only use Van Kampen UITs for some reason.  There are a lot of other companies out there that do UITs, but the VK ones are the only ones that show up in our inventory.    


Pros would be that you are still getting a diversified mix.  You can buy a ladder of bonds with just one order.  The costs vs a fund are usually lower.  UITs don't have much of an annual expense. 
Jan 26, 2009 5:43 pm

I just started to look into them myself.  I called the VK internal today to ask a couple of questions so I have a few concerns.  My first concern is that there are no ROA or exchange privileges. The yields on the MUT's seem okay but the CUT's seem a liitle weak.  Although I do like the diversification offered since our regular corporate bond inventory has been thin.  Plus, as mentioned earlier, it seems like our clients are buying these bonds at a premium. 

Jan 26, 2009 8:04 pm

Having gone through '00-'02, and now our most recent net worth reduction and pesky capital gains elimination exercise, I'm now and forever going to key in on the growth and visibility of (equity) UIT wholesalers as a primary market top/sell indicator.  UIT wholesalers were all over the place in '99, '00, and the ones in our territory all looked like SEC cheerleaders (the female kind).  Danger, Will Robinson.

 
'03 - '06, didn't see a one.
 
Nuveen, Nike and Van Kampen UITs blew me to pieces in '00, '01, and I had finally forgotten that pain, so naturally I jumped on board with some First Trust products in '06, '07.  Rinse, lather and repeat. 
 
Lesson:  When a hot chick talks to you about taking distribution in kind as a positive aspect of owning/recommending an investment as it implodes, politely refuse the logo LED keychain she is offering, reach up and gently wipe away the single tear which will form in the corner of that perfectly shadowed and mascaraed hazel eye of hers, softly touch the downy surface of her rouged and tastefully glittered cheek with the back of your hand, and say, "I'm sorry, TiffaMishaLainieTaylorMorganReeseRachelAmberMarybeth, but it's a lonely road I must walk.  This is where we must say 'adieu.'"
Jan 26, 2009 8:21 pm

Beemer, I can see what you're saying about the UIT implosions. I used to buy UIT's in my own portfolio back in the roaring 90's. 

 
However, I am not leaning towards equity UIT's, except in special circumstances.  I am only looking at the fixed income's.  Specifically, I think the muni's have some merit.  I am not enamored with the corporate's, but the muni yields looked competitive.  Hence, the comment Vin Diesel made regarding "blowing up" should not be much of an issue either.  It seems the yields in these are a bit better than in funds.
 
I am mostly concerned about technical aspects of the MUT's that I might not have considered that could come back to haunt me.
Jan 26, 2009 8:37 pm
2wheeledbeemer:

Having gone through '00-'02, and now our most recent net worth reduction and pesky capital gains elimination exercise, I'm now and forever going to key in on the growth and visibility of (equity) UIT wholesalers as a primary market top/sell indicator.  UIT wholesalers were all over the place in '99, '00, and the ones in our territory all looked like SEC cheerleaders (the female kind).  Danger, Will Robinson.

 
'03 - '06, didn't see a one.
 
Nuveen, Nike and Van Kampen UITs blew me to pieces in '00, '01, and I had finally forgotten that pain, so naturally I jumped on board with some First Trust products in '06, '07.  Rinse, lather and repeat. 
 
 
That's so funny because it's so true!
Jan 26, 2009 8:56 pm
Spaceman Spiff:

The major con for me is that you're still paying a premium for the bonds.   That and the clients don't really understand them.  They pay back principal once in a while and it stays on their statement forever.  It confuses them.  I've never found them to really be that competitive with the rates of a regular bond.  Jones will only use Van Kampen UITs for some reason.  There are a lot of other companies out there that do UITs, but the VK ones are the only ones that show up in our inventory.    


Pros would be that you are still getting a diversified mix.  You can buy a ladder of bonds with just one order.  The costs vs a fund are usually lower.  UITs don't have much of an annual expense. 
 
It's because Van Kampen is a preferred family, so so are there other products... Not really that many options in the UIT world, Claymore, First Trust, and some proprietary crap(i.e. Van Kampen)
Jan 26, 2009 8:59 pm

I think UITs are fine for equity portfolios.. of course I wouldn't stray to far from First Trust...Perform very well with out the internal trading costs of mutual funds.