Tag Archives: Mutual Funds

Business Articles, Investing, Investment Vehicles

“Exchange Traded Fund” ETF Basics

Many Business professionals would be shocked to find out that a basic Exchange Traded Fund on the NASDAQ, New York Stock Exchange or on Japans 225 funds that make up the Nekkei Index are all either UIT’s or Open-Ended Funds (Mutual Funds). This article’s purpose is meant to identify and educate more executive business leaders about ETF’s you likely see daily listed on TV or on the many Stock exchanges.

Before we are able to begin listing the different key components that make a Exchange Traded Fund. It’s a good idea if I share some basics to help you understand the ETF’s are complex Financial Vehicles. And for today’s article we will be touching on UIT’s, and Open-Ended Funds. Because that is what the majority of ETF’s are! Unit Investment Trusts and Open-Ended Funds. Interesting stuff right? Lets breakdown the basics of UIT’s and Open-Ended Funds.

Unit Investment Trust “UIT”

What is a Unit Investment Trust? Great question! According to FINRA‘s Website:

“Unit investment trusts, or UITs, fall in the same category as mutual funds and closed-end funds. All three are investment companies, which means they pool money from many investors and invest it based on specific investment goals. The key difference with UITs, however, is once a UIT sets its portfolio, it remains the same for the life of the fund (barring any major corporate events, such as a merger or bankruptcy proceeding) and the term is fixed.”

Investment Company Act of 1940

The key to understanding ETF’s is the fact all ETF’s are Investment companies. If I share more descriptively. A ETF is a Pool of Money that has been legally established as an Investment Company. Now we need to dive slightly deeper into what is “The Investment Company Act of 1940?” The S.E.C. Securities and Exchange Commission. The S.E.C. states on it’s website :

Additionally The Act was signed in to law by President Franklin D. Rosevelt who felt the need for Regulation after the Stock Market Crash of 1929 destroyed so many and especially after the Great Depression left its mark on America’s tattered Finances. The biggest thing I would like to leave you with to know and recognize about the Investment Company Act of 1940 is the fact this Law is a regulatory framework for retail investment products and vehicles. Most importantly the Act leaves Fund Managers and Financiers with three categories of Investment Companies to make offerings. These Company categories are “Unit Investment Trusts” UIT’s, (Mutual Funds) Open-Ended Management Investment Funds and Closed Ended Management Investment Funds. It’s very important to discern the Requirements for Investment Companies are based on their categorization and offerings of Investment products or vehicles.

Open-Ended Management Investment Fund

All a Open-Ended Management Investment Fund really is in most cases is a Mutual Fund! It’s very simple. A collection of Securities or Investments organized into a Pooled Investment Vehicle as a Investment Company. Here are some facts about Mutual Funds. An Open-Ended Fund continuously makes new Shares available to the Public for purchase. These funds are professionally managed and often are able to negotiate and procure Investment vehicles at a discounted price that is not available to Retail Investors. Most Retirement Funds and Retirement Accounts prefer the ease and efficiency of Mutual Funds for Investment Vehicles. Open-Ended Funds can be Growth Oriented, or even Mixed with Alternative investments used as Products inside the Fund. And this is why they make a excellent vehicle for Exchange Traded Funds.

Exchange Traded Funds

By now I think your catching on to the fact Exchange Traded Funds can take many forms or basically be a Investment Company formed into one of three categories Unit Investment Trusts, Open-Ended Funds, Closed Ended-Funds. It is remarkable that when you breakdown the basics of “What a ETF is?” you find that most Exchange Traded Funds are a unmanaged UIT or a Mutual Fund. I do hope you learned some things reading this week’s article. And in conclusion stay tuned! I feel it’s only fair for me to revisit expand on Closed-Ended Investment Management Companies in the near future. But for today? After doing some heavy studying. I felt it was really interesting to write about the fact that 70% of the ETF’s in the OTC and Big Blue Chip Markets? Are UIT’s and Open-Ended Funds are just Mutual Funds. I hope you found this article interesting and educational. This was something I felt could be useful and I felt it would make for a great little article. In conclusion. I would say, stay tuned. Big NEWS next coming week. Thanks for stopping by. Please feel free to contact me. HERE.

Godspeed

JS

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Investing, Investment Adviser Arizona

Pooled Investments: What you need to know?

Today’s post will be fairly quick about Pooled Investments, Unit Investment Trusts “UIT’s”, Open End Funds, Closed End Funds, thier Management companies, ETF’s Exchange Traded Funds and REIT’s.

On my road to obtaining my Series 65 Investment Advisors License I have been learning and polishing my skills within Investment Funds. Today’s post is a quick need to know for Investors who have been curious and have been search for more detailed information about Pooled Investments? What are their uses, and how they work and more? Today’s post is what you have been searching for!

Unit Investment Trusts

In U.S. financial law, a unit investment trust is an investment product offering a fixed portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A unit investment trust UIT is one of three basic types of investment companies. The other two types are open-end funds (usually mutual funds) and closed-end funds. Exchange-traded funds (ETFs) are generally structured as open-end funds, but can also be structured as UITs.

Open End Funds

Open End Funds are usually recognized as “Mutual Funds” and used as Pooled Investments. According to the SEC Website:

  • Mutual funds generally sell and purchase their shares on a continuous basis, although some funds will stop selling when, for example, they reach a certain level of assets under management.
  • Investors purchase shares in the mutual fund from the fund itself, or through a broker for the fund. Investors cannot purchase the shares from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund’s current net asset value (NAV) per share plus any fees that the fund may charge at purchase, such as sales charges or loads.
  • Mutual fund shares are redeemable. This means that when mutual fund investors want to sell their fund shares, they sell them back to the fund or to a broker acting for the fund. Investors sell their shares at the current NAV per share, minus any fees the fund may charge at redemption, such as deferred sales loads or redemption fees.
  • Mutual funds are registered with the SEC and subject to SEC regulation. In addition, the investment portfolios of mutual funds typically are managed by separate entities known as investment advisers that are also registered with the SEC.

Mutual Funds are also SEC Registered Securities and traded on the Open Primary Stock Market.

Closed End Fund

Closed End Funds are also known as Closed End Investment Management Companies like Blackstone, Morgan Stanley, Vanguard typically offer their funds to Accredited Investors and Institutional Investors. According to the SEC Website:

There are many varieties of closed-end funds.  Each may have different investment objectives, strategies, and investment portfolios. They also can be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying shares.

Exchange Traded Funds ETF’s

The SEC Investor Website classifies ETF’s as

Exchange-traded funds (ETFs) are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. In return, investors receive an interest in the fund.  Most ETFs are professionally managed by SEC-registered investment advisers.  

Some ETFs are passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), while others are actively managed funds that buy or sell investments consistent with a stated investment objective.  

ETFs are not mutual funds.  But, they combine features of a mutual fund, which can only be purchased or redeemed at the end of each trading day at its NAV per share, with the ability to trade throughout the day on a national securities exchange at market prices.  Before investing in an ETF, you should read its summary prospectus and its full prospectus, which provide detailed information on the ETF’s investment objective, principal investment strategies, risks, costs, and historical performance (if any).

REAL ESTATE INVESTMENT TRUSTS or REIT’s

REIT’s are also pooled investments. Real Estate Investment Trusts are a “EQUITY SECURITY” and the Shares are whole shares and never fractional shares. However REIT’s are not classified like Mutual Funds. As the Investors of REIT’s typically only receive “INCOME” from their investment in the form of Rent and Mortgage Income. REIT’s are traded in the Open Stock Markets. That Tax is attractive to most and REIT’s usually have low management fee’s since they are Passively managed Assets.

Pooled Investments are all required to offer investors access to a Prospectus. And Pooled Investments are Regulated under the Securities Act of 1933 and the following Securities Act of 1934. Some are Private Investments and some are Initial Public Offerings. However this post today will not dive deeper into these topics. Later on I will writer more about IPO’s and Private Placement Memorandums and more. Stay tuned I will also be “NET ASSET VALUE” the formula to calculate Net Asset Value per share and more.

Becoming a Investment Advisor Arizona & Kansas City

I do hope you learned a little today by reading up on Pooled Investments, I am working hard towards obtaining my Series 65 NASAA Investment Advisors License and feel it’s my duty to educate other Investors and qualified individuals about the different investment opportunities out in the market place.

Thanks for stopping by and reading some of my required Investment Advisor Information I must digest. Godspeed.
JS

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