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2019-07-01

Could a Unit Investment Trust be Set up as a Company that Only Holds One Stock?

By author Morgan Jassen

tags: #investor

This blog posts asks the questions: Could a Unit Investment Trust be set up as a company that holds only one stock? How could one set up a financial security/entity/vessel that holds only one stock and allows investors to invest tiny amounts in that security?

Watching the DVD "Understanding Investments"¹ by the persona of Fullenkamp, in Disc 1, Lecture 5, the persona of Fullenkamp (the lecturer) introduces a term called a Unit Investment Trust.

Learning more about a "Unit Investment Trust". It can be described as a fund or company that is fixed (doesn't change over its existence; isn't actively managed), may/does pay a dividend, does expire, may have a "sponsor", has some similarities to (but some differences from, notably that it is fixed not managed) a standard mutual fund, and can contain various number/type of other securities. Also the trust's investors may at any time sell their portions/stakes back. 

In other words an example could be a trust that invests in 10 dow jones stocks, and in turn one investor or many investors in turn invest in the trust. (This is just one arbitrary example (although this one example seems popular), as it seems a Unit Investment Trust may be very flexible in terms of what securites it holds, and what quantities of them that it holds.)

Ok. So what about the title of this blog post?

Hypothetical question: How can one set up a financial vehicle/entity such that it would empower investors to be able to invest small amounts in dividend-producing stocks?

Simple example: How could one person invest $10 in starbucks stock (or any single stock, this is only one random example), for 3 months, and get back however many cents worth of dividends proportional to what the stock earned?

Is a Unit Investment Trust an answer to that question? If someone or a sponsor wants to empower investors to be able to invest in a single stock, but in tiny increments, but still be able to get dividends paid out to the investors, then can a Unit Investment Trust do/be that? 
In other words could ^this scenario be done by creating a trust company is constituted of a Unit Investment Trust, that buys a normal/large amount of one stock, and then set it up so the dividends from that (minus the trust administration costs, can't think of a way around that atm) flow back to the people investing in the trust?

I don't know the answer to these questions at this point. So at this point this is more of an excercise than a known use case for a Unit Investment Trust.

In conclusion, an asked yet still unanswered question of this post was, could a Unit Investment Trust be set up as a company that holds only one stock? How could one set up a financial security/entity/vessel that holds only one stock and allows investors to invest tiny amounts in that security?


¹ Fullenkamp, Connel; "Understanding Investmeents" (DVD); Chantilly, Va. : Teaching Co., [2012] [ http://www.worldcat.org/oclc/883419007 ]

*Note about non-selling: Also important to me personally: The "Understanding Investments" materials I can feel are not trying to sell me any particular investments, but rather trying to educate me about investing. This is extremely important and relaxing to me, especially at this point when I still consider myself a brand-new student of financial investing!

This blog post was pre-published on 2019-06-23.
This blog post first published at https://investorworker.com/2019/2019-07-01-unit-investment-trust.html