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Unit Investment Trust

A unit investment trust (UIT) is a pooling of investors dollars with a common objective and investing in a fixed portfolio of securities. The objective of the trust may be growth, income or combination of these

Unit investment trusts have both similarities and differences to mutual funds. For example, take a familiar (though inaptly named) UIT strategy called “Dogs of The Dow”. This strategy starts by examining the 30 stocks of the Dow Jones Industrial Average and ranks them from highest to lowest dividend yield. Once that has been done, the five lowest price stocks of the ten highest dividend yielding companies are selected. The UIT purchases and holds those five stocks for a set period of time, usually 13 months. The trust is then liquidated and the proceeds go back to the investors. The investor can apply the strategy again, but the investor can do anything with the proceeds that they wish.

UIT’s are generally unmanaged and there is no trading of the underlying securities until the trust is liquidated at the end of the trust term. The fund remains liquid, so the investor can liquidate their portion of the trust at any time.

There are numerous UITs and UIT strategies. UITs can be comprised of stocks only, bonds only or a combination of stocks and bonds. It is common to have UITs invested in a sector.

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