UITs

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newnew's picture
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Joined: 2007-02-23

Anyone use alot?  I have not, but seems great for monthly checks and buying 25 issues in 1 ticket. Low cost too, although nice commish. Also pays off top (not off NAV) like ind bond. Cons?

voltmoie's picture
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Joined: 2008-11-05

newnew wrote:Anyone use alot?  I have not, but seems great for monthly checks and buying 25 issues in 1 ticket. Low cost too, although nice commish. Also pays off top (not off NAV) like ind bond. Cons?I like UITs alot, sold a few.  I think the downside is when the bonds are paid off the monthly checks pay less and as an advisor you can't go out and pop a big bond purchase.  Also, looks like the yeilds are a bit less than indv. bonds.With that said, if they have less than 100k to invest it seems like a great way to go.  I'll be eager to see what the vets have to say about them.

RealWorld's picture
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Joined: 2009-07-13

You have to watch the par value on them but as long as the par is good, the only other con I can think of is your clients may not understand them very well.

Gaddock's picture
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Joined: 2007-02-23

You know what you have vs. a mutual fund. You can hit specific industries and or sectors or commodities. It's half the price of a mutual fund and the load DCA's out. You are not taxed until it matures unlike a mutual fund and if it matures you can take the stock as an in kind transfer and not pay taxes until you sell them. If the account is large enough one could use them for building quality stock positions and selling off the crap. They are liquid.
 
I think they smoke MF's in a big way.

snaggletooth's picture
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Joined: 2007-07-13

Yeah, I've been using them a lot for taxable accounts.  I haven't had any problems with clients understanding them.  I have had an incredible amount of success lately selling against mutual funds.  It doesn't really matter what, just against mutual funds.

RealWorld's picture
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Joined: 2009-07-13

I have only sold fixed UITs no equity. Snaggle are you saying you have sold equity mf against funds?

snaggletooth's picture
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Joined: 2007-07-13

RealWorld wrote:
I have only sold fixed UITs no equity. Snaggle are you saying you have sold equity mf against funds?
 
I think your question is mis-worded, no?
 
If you mean, "Have you sold equity UIT's against mutual funds?", the answer is a clear YES.

Gaddock's picture
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Joined: 2007-02-23

It's an easy sale .... when they look at all the familiar names and symbols vs. a bunch of investment mumbo jumbo I can feel them take ownership that they simply can't get with a mutual fund.

RealWorld's picture
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Joined: 2009-07-13

What do you mean?
Do you mean that people like the equity UIT b/c they know what stocks are inside of it?

Gaddock's picture
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Joined: 2007-02-23

Yes ... exactly. They are putting their trust in something that seems a lot more tangible than giving it to some guy they have never heard of vs. 15 or 20 well known blue chip stocks they actually have fractional ownership in.

snaggletooth's picture
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Joined: 2007-07-13

RealWorld wrote:What do you mean?
Do you mean that people like the equity UIT b/c they know what stocks are inside of it?
 
And the tax implications.  All capital gains are long term.

Gaddock's picture
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Joined: 2007-02-23

Not to mention the in kind transfers. They can hold the shares as long as they want.

newnew's picture
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Joined: 2007-02-23

I started the thread thinking more of munis, or even corporates, instaed of bond funds. For a monthly check. One thing is for sure, the past year is killing mfds. UITs and ETFs etc-- why pay any more?

snaggletooth's picture
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Joined: 2007-07-13

newnew wrote:I started the thread thinking more of munis, or even corporates, instaed of bond funds. For a monthly check. One thing is for sure, the past year is killing mfds. UITs and ETFs etc-- why pay any more?
 
Take a look at this buddy:  http://www.ftportfolios.com/Retail/dp/dpsummary.aspx?fundid=6120
 
9.3% yield on commission account, 9.58% yield on fee based account.  Holdings are diversified too.

B24's picture
B24
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Joined: 2008-07-08

Gaddock wrote:Not to mention the in kind transfers. They can hold the shares as long as they want.
 
Hasn't the change in trust-type for UIT's made in-kind distributions less tax efficient on UIT's?  From what I understand, UIT's are now treated like mutual funds for tax purposes, and in-kind distributions are essentially liquidations.  Not saying I'm right, but I thought there was a major change.

Gaddock's picture
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Joined: 2007-02-23

B24 wrote:Gaddock wrote:Not to mention the in kind transfers. They can hold the shares as long as they want.
 
Hasn't the change in trust-type for UIT's made in-kind distributions less tax efficient on UIT's?  From what I understand, UIT's are now treated like mutual funds for tax purposes, and in-kind distributions are essentially liquidations.  Not saying I'm right, but I thought there was a major change.
 
At this time you can distribute what's in the UIT into your account 'in kind' Your basis is established at the time you got into the UIT. Dividends are taxed as if you owned the stock because you do. So you can get it all in kind and sell off the junk and keep the good stuff. Probably want to do it in a wrap account of the transaction fees would be large. Some firms will require you X amount of units to do it but that's a firm policy not an IRS rule.

B24's picture
B24
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Joined: 2008-07-08

The Internal Revenue Service and US Treasury Department announced new regulations that affect tax reporting for unit investment trusts issued as grantor trusts after July 31, 2006.
Before this change, all unit trusts offered by Edward Jones were structured as grantor trusts. After the change, the majority of unit trusts offered by Edward Jones are structured as Registered Investment Companies (RICs).
UIT tax reporting requirements for clients are simpler under the RIC structure than under the new requirements for grantor trusts issued after July 31, 2006.
UITs held in retirement accounts are not affected.
These new regulations are subject to further change and clarification by the IRS.
These changes were not applicable for clients' 2006 income tax reporting but are applicable for tax years 2007 and beyond.
Below you will find the highlights of the two different trust types:
Registered Investment Companies (RICs)


  • Capital gains are reported on an annual basis.
  • RICs have more stringent diversification requirements. Certain state-specific trusts may no longer be offered because of the relatively low availability of suitable bonds in these states.
  • In-kind distributions may now cause capital gains or losses.

Gaddock's picture
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Joined: 2007-02-23

Hmmm do I stand corrected? I pretty sure the First Trust equity UIT's work like I described. At least that was what I was told. I'll for sure look into that next week
Thanks

Takingnames's picture
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Joined: 2007-11-09

I like them, particularly when there is some oversight (ie- positions will be removed if something really hits the crapper) AAM had an Insured Muni product that rocked it a few months ago.
 
. Lower costs than MF and with maturities, different fee structures for fee based accounts, it's a low cost of entry for some interesting strategies (covered call UITs, ETF like strategies) they have a nice spot for tactical positioning.
I say "Thumbs Up"

Gaddock's picture
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Joined: 2007-02-23

Takingnames,
How are you liking your new home?

newnew's picture
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Joined: 2007-02-23

Snags--my comment was that the past year is killing mfds, NOT UITs. You read it too fast.

Takingnames's picture
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Joined: 2007-11-09

Gaddock wrote:Takingnames,
How are you liking your new home? Hey Gaddock!
Happy, happy. Much better environment for the way play.
 Needed to bring 60% in 12 - have 100% in 2 and above (pipeline had some nice prospects that moved right along with the new gig)
PM me.

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