The Motley Fool: Unitary Investment Funds


Unit investment trusts

Q. Are mutual funds like mutual funds? —PD, Winona, Minnesota

A. Both are regulated and offer diversification through an assortment of stocks, bonds and other securities, but they also differ. At the end of each trading day, shares in the mutual fund are issued and redeemed on demand at a specified price (the “net asset value per share”) which reflects the total market value of the fund’s holdings divided by the number of actions. The number of shares is not fixed; if a lot of people want to buy, the fund company will issue more shares and have more money to invest.

Unit investment trusts (UITs), on the other hand, have a fixed lifespan, beginning with a single public offering and ending on a specified date through liquidation. While mutual fund holdings often change a great deal over time, UITs have a relatively fixed portfolio of investments. Investors wishing to trade UIT shares do so in the secondary market, where share prices may be higher or lower than the net asset value of the trust’s holdings. Do your research before investing in an UIT.

Q. Can you recommend any good books on how to spot bad corporate behavior in their financial reports? — FC, Greensburg, Pennsylvania

A. Check out “Financial Shenanigans: How To Detect Accounting Gimmicks & Fraud in Financial Reports” by Howard M. Schilit and Jeremy Perler (McGraw-Hill, $40); “What’s behind the numbers? A Guide to Exposing Financial Quibbles and Avoiding Huge Losses in Your Portfolio” by John Del Vecchio and Tom Jacobs (McGraw-Hill, $36); or “Financial Intelligence: A Manager’s Guide To Know What the Numbers Really Mean” by Karen Berman and Joe Knight with John Case (Harvard Business Review Press, $35).

Fool’s School: Know your shareholder rights

So you’ve bought “common stock” in a company that you think will grow over the next few years. Excellent! You now have shares that can increase in value over time, and you also have new rights.

For example, ordinary shareholders generally have the right to vote. Among other things, you can vote for or against board members and can vote (usually non-binding) on ​​executive compensation. You can also have a say when a company is faced with a big decision, such as accepting another company’s offer to merge with it (or, in some cases, liquidate the company).

To help you decide how to vote — and decide whether you want to remain a shareholder, for that matter — you have the right to take a close look at company performance. Publicly traded companies in the United States are required to file quarterly and annual reports with the Securities and Exchange Commission (SEC), which can be viewed by anyone. These companies must also hold annual general meetings, informing you in advance of the matters to be voted on. Shareholders can also often make proposals up for a vote – and many do, suggesting changes such as a greater focus on sustainability and/or changes in political lobbying and political contributions. Shareholders also have the right to sue, through shareholder class actions, in certain situations.

Note that in addition to common stocks, companies can also issue preferred stocks and bonds. The holders of these titles have different rights. For example, when companies issue dividends, preferred shareholders receive their due before ordinary shareholders. And if a company gets into trouble and ends up being liquidated, bondholders will be paid before preferred shareholders, and common stockholders will be paid last – if there’s anything left.

As a common stock investor, you face the most risk, but you also have a lot more to gain than other investors if the company does very well.

My smartest investment: defense growth

My smartest investment has been in shares of Lockheed Martin. I bought my shares when they were at $87, and they’ve more than quadrupled in value since. — DM, online

The Fool responds: They’ve actually almost quintupled in value at this point – congratulations!

Despite an ongoing war in Ukraine, this major defense contractor hasn’t been firing on all cylinders lately. Lockheed Martin’s latest earnings report was disappointing, with revenue down more than 9% year-on-year, while operating profit fell more than 10%. Partly due to a large pension settlement, net income fell 83%. On the positive side, free cash flow improved 8% year over year, with the company reporting cash from operations of $1.3 billion.

Still, there are plenty of reasons to be optimistic about Lockheed Martin’s future. CEO James Taiclet said: “While revenue in the period was impacted by supply chain impacts and the timing of customer contract negotiations, our cost management initiatives resulted in increased profit margin). Additionally, our strong cash generation also continues to provide the resources needed to invest in building the foundations for future revenue and margin growth opportunities.

Meanwhile, the company also has three contracts with NASA for work related to Mars missions, and it raked in nearly $12 billion last year for space work. You’re sitting on a big win – dig deeper into the business to see if you expect further growth to come.

— distributed by Andrews McMeel Syndication


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