Chicago company introduces research service for unitary investment trusts


A Chicago company says it has created a dedicated mutual fund research service, a niche investment similar to mutual funds and closed-end funds.

Brothers Randy and Paul Watts introduced the publicly available service called UIT Investing on Wednesday, but spent more than a year developing it. Randy Watts has worked with ITU since 2005, at companies such as Nuveen Investments and Incapital, and his brother Paul Watts is a seasoned software developer.

Unlike other funds, ITUs are typically not reviewed by research services, such as Lipper, Value Line, or Morningstar, leaving a void that ITU Investing has said it can fill. The shorter terms, complex holdings, and range of options in trusts made them difficult for advisers themselves to assess and too specialized for larger departments to review.

Leveraging technology to assess things like performance, risk and expense, Randy Watts said ITU Investing can offer research and a scoring system similar to what advisers expect on d ‘other investments, such as mutual funds.

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ITUs are registered investment companies with certain characteristics of mutual funds and closed-end funds. Like mutual funds, UITs issue shares or redeemable units, and they are similar to closed-end funds in that they typically only issue a fixed, specific number of shares.

But unlike closed-end funds, ITUs do not actively trade their investment portfolio. Instead, they buy and hold a set of particular investments (sometimes as few as half a dozen shares) until a fixed termination date, when the trust is dissolved and the proceeds go to shareholders.

Trusts have been around for decades, but aren’t particularly popular. ITUs accounted for $ 84.55 billion in assets at the end of 2016, a fraction of the fund industry’s roughly $ 22 trillion, according to the Investment Company Institute, a global association of regulated funds, including mutual funds. investment, exchange-traded funds, closed-end funds and ITU.

Historically, the majority of UITs were made up of bonds, but equity trusts have grown in popularity in recent years. In 2016, there were 5,103 ITUs and 2,589 of these were equity trusts. Of ITU’s more than $ 84 billion, 85% of assets, or $ 71.5 billion, were held in equity trusts at the end of 2016. Bond trust assets stood at a just over $ 13 billion.

Randy Watts said the lack of research is part of the reason why more advisers are not using ITU in client portfolios. Performing due diligence on behalf of a client’s best interests, under increasingly stringent regulations, is a task without a research service.

But Watts also recognized that, like any type of fund, there are some UITs that are better than others and that they have remained a niche for other reasons. He said about 60,000 to 80,000 advisers use the trusts.

Most advisers using ITUs do so because they can be brought to market quickly – in two to three months – and therefore are ideal for thematic investments, Watts said. They can also be used to fill gaps in portfolio allocations or overweight them in specific areas, such as artificial intelligence, which could cut across sectors and companies of different sizes.

Watts said UITs can also be a vehicle that allows less wealthy investors (those with less than $ 250,000 in investable assets) to adjust allocations each year, as UIT durations typically do not exceed 12-14. month. But for high net worth investors and advisers who manage their money, ITUs might not be as useful.

Halite Partners CIO Lee Caleshu said his company doesn’t use ITUs, but “that doesn’t mean we don’t consider them.” He said that for passive investments he finds ETFs cheaper. He also said that Halite Partners has the size and ability to approach asset managers as a company, allowing them to negotiate prices with active managers and save money on behalf of their clients. .


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