4 Differences Between ETFs and UITs

August 28th at 1:00pm by Tom Lydon

ETFs vs. UITsExchange traded funds (ETFs) might share some similarities with unit investment trusts (UITs), including transparency and tax efficiency, there are some key differences for investors to understand.

UITs are investment companies that buy a fixed, unmanaged portfolio of income-producing securities. Those shares in the trust are then sold to investors. Other key differences between ETFs and UITs include:

1) UITs are primarily professionally selected buy-and-hold vehicles. They have a transparent portfolio that is selected at time of deposit, and it does not change until the trust matures. Thus the portfolio is not managed, but instead is supervised. The research team that supervises each trust has the ability to eliminate holdings of the trust but only in extreme circumstances like severe deterioration in credit quality, fraud or other irregularities.

2) Unlike ETFs, UITs have a maturity date like a CD. When they terminate, the trust is liquidated and proceeds are sent back to the unit holders.

3) As there is little to no trading in most UIT portfolios, they are generally more tax efficient than traditional actively managed mutual funds.

4) UITs are not traded on an exchange, but they do have end of the day liquidity just like traditional mutual funds.

For more educational articles on ETFs, please visit our ETF education page.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers