The performance of equity unit investment trusts. Issue 4 (8th April 2019)

• Record Type: Journal Article
• Authors: Comer, George; Rodriguez, Javier
• Is Part Of: Managerial finance. Volume 45:Issue 4(2019)
• Page Start: 470
• Page End: 483
• Publication Date: 2019-04-08
• Subjects: Portfolio evaluation -- Risk adjusted performance -- Unit investment trust; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-02-2018-0088
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: The purpose of this paper is to examine the risk adjusted performance of unit investment trusts (UITs). These UITs are a unique investment vehicle in that the trusts invest in a fixed portfolio of stocks for a predetermined period of time and hold limited cash positions. Design/methodology/approach: Using a sample of 1, 487 UITs from January 2004 to December 2013, the authors estimate the risk adjusted performance of the UITs. The authors use daily return data and four different returns based models to measure the alphas of the UITs. Findings: The authors find that before fees and expenses the UITs generate significant negative alphas. The authors also find that observable trust characteristics are unable to explain the poor risk adjusted performance of the trusts. Originality/value: Despite $85bn being invested in these unique buy and hold vehicles, the academic literature has not examined the risk adjusted performance of the trusts. The poor performance of these trusts indicates that restricting flexibility and maintaining full investment for a fixed period of time may not be beneficial to investors.