Looking for opinions on this Unit Investment Trust

[Dude]

Hi all,
My older brother is thinking of putting his $8K Roth IRA contributions into First Trust Portfolios "Target Focus Four" unit investment trust (a local financial advisor is recommending it as "a new investment opportunity):

http://www.ftportfolios.com/retail/dp/dpsummary.aspx?fundid=4255

I don't know.....sounds like a dumb idea to me.....there is a 1% initial sales charge, a 1.45% deferred sales charge, a 0.5% "creation and development fee", 0.29% "organization costs", 0.215% annual operating expenses, blah blah blah.....

Sounds like alot of fees to me (compared to my Vanguard index funds and other low expense funds that I use in my 401k).

Anybody have experience with or an opinion about First Trust Portfoilios or this "Target Focus Four" fund?

Why would somebody want to invest in a unit investment trust (UIT) rather than a regular mutual fund, index fund or ETF?

Also, this UIT terminates in 15 months.....is this "normal" for a UIT?

I don't know, this whole thing seems overly complicated and like it's designed to extract lots of fees from investors in a short amount of time.....I don't want to see my brother get the shaft.....

Opinions?  Thanks

 

[cute fuzzy bunny]

Without even looking at it, I would move on just after seeing the fees. Unless they send someone over to clean your house and cook your meals as part of the deal

 

[Nords]

(a local financial advisor is recommending it as "a new investment opportunity)

It sure is... for the financial advisors!

Most ETFs were originally structured as UITs. Don't know if that's changed.

This story reminds me of the limited partnerships of the '80s & '90s...

 

[cute fuzzy bunny]

Ok, after a look see, heres what you do. Go to home depot, see if they have any 11 foot poles. Buy one, then dont use it to touch this fund.

I dont see anything special about it at all. You can buy a lot of investments with no loads, high expenses or other catches that should perform better or at least as well before all the costs are rolled in.

Looks like a multi-cap blend fund...some large, mid and small cap, some growth, some value...a good chunk of technology and financials.

Doing a simple coffee house portfolio with vanguard would cost nearly nothing, only need rebalancing from time to time, and offer excellent returns.

 

[Dude]

Thanks guys, much appreciated!  I'll set my bro straight and send him over to Vanguard

 

[justin]

I got a laugh out of this thread. First Trust must be doing some serious marketing!

I just did due diligence on this particular fund for my company's sorta pension plan.

Here's a copy of the email I sent to the pension plan trustee on 2/15/2006:

"I looked at the material you sent about the Target Focus Four portfolio. Their information states that the fund’s returns of 23% per year over the last ten years are hypothetical and not real since none of the portfolios have been invested for that long. What First Trust has done is gone back over historical returns and developed a complicated strategy that would have produced very impressive returns over the last 10 years. This task is easy once we know what the 10 year returns of individual stocks are. Anyone can pick a winner after the race is over. My point is that their strategies of stock selection would have worked great, had they implemented the strategies 10 years ago. After talking to someone at First Trust today, it seems the Target Focus Four portfolios started in October 2005. Since then, they are down 5-6%. There is no long-term track record that we can look at for this type of portfolio other than hypothetical returns even though no real money was at stake.

The representative from First Trust provided me access to the prospectus for the Target Focus Four portfolio for the February 2006 offering. The prospectus reveals a number of things that make this investment look like a poor choice in my opinion. The first is the cost. According to the prospectus, there is the 2.95% sales charge that they disclosed to us. In addition to the fees disclosed to us in the information provided to you earlier, there are “Organization Costs” of 0.29% and “Estimated Annual Trust Operating Expenses” of 0.215%. In total, we will pay 3.455% in sales charges and fees for the 15 months of Target Focus Four ownership, and 2.455% for each 15 months thereafter. These expenses don’t count the brokerage commissions that the portfolio must pay when it buys the stocks or the bid/ask spread premium that the portfolio loses at each stock buy/sell. They only buy and sell stocks once every 15 months, but that is a 160% annual turnover, much higher than many conventional mutual funds.

The prospectus reveals that most of Target Focus Four’s individual stock holdings are worth $1000-2000 each. They are only buying a few dozen to a few hundred shares of most companies. I don’t know what they are paying for each stock trade, but the brokerage commissions add up when they are buying stocks in such small amounts. The entire February 2006 Target Focus Four portfolio only received $400,000 in investments which they split between 130 different stocks. They aren’t getting the economies of scale that the larger mutual funds are getting with hundreds of millions (or billions) under management."

=====================================

Bottom line: I wouldn't touch it with a 20 foot pole. These guys managed to lose 5-6% over a period when ALL the indexes that I found made 5-10%. The only folks getting rich off of all of this is First Trust.

 

[cute fuzzy bunny]

Bottom line: I wouldn't touch it with a 20 foot pole.

See, I was trying to be nice. It *does* happen from time to time

I guess the bad news is that they're losing money. The good news is that at that expense ratio, you'll have a lot less around for them to lose.

 

[Dude]

justin - great analysis, thanks for posting, I'll pass it along to my bro!

 

[Gone4Good]

In total, we will pay 3.455% in sales charges and fees for the 15 months of Target Focus Four ownership, and 2.455% for each 15 months thereafter. 

This is criminal. The "financial advisor" should be strongly taken to task for recommending this.

 

[justin]

This is criminal. The "financial advisor" should be strongly taken to task for recommending this.

The trustee of our pension-like plan got a cold call from a marketer for a brokerage firm pitching this First Trust Focus Four unit investment trust. They had a historical 10 year average return of 23% per year. That's backtested with a hypothetical portfolio that didn't really exist (so they say in the fine print).

I can see the appeal in those claims (if only they were true!).

 

[cute fuzzy bunny]

I have a historical backtested 320% return then, cuz I saw a stock yesterday that went up that much, and my strategy going forward is to buy exactly those kinds of stocks that will do that in one day.

Due to this incredibly high return, which again, was scientifically tested by my looking at yahoos 'top gainers' yesterday by accident, I will be charging a 50% front load, a 10% ER, and a 50% back load of the original investment. If your funds have dropped to the extent that you cant pay the 50% back load, you have to come to my house and mow my lawn until you make it up.

What I just said was certainly sillier than what they said...but quite frankly...not much sillier.

 

[justin]

What I just said was certainly sillier than what they said...but quite frankly...not much sillier.

I agree.

 

[cute fuzzy bunny]

Ok, this horse is dead, and all the beating in the world wont bring it back. I suggest we form a quality circle to evaluate the criteria for what consists of 'dead horse' and what it merely an underperforming horse, then promote the horse to a supervisory position.

Do you agree Justin?

 

[justin]

Do you agree Justin?

I agree.

 

[cute fuzzy bunny]

I find your agreement very agreeable.

Shoot Dory, better schedule that next hard drive upgrade. 10,000 posts isnt that far away, and we're going to need a lot more space for boobs pretty soon.

 

[bosco]

I have a historical backtested 320% return then, cuz I saw a stock yesterday that went up that much, and my strategy going forward is to buy exactly those kinds of stocks that will do that in one day.

the Will Rogers theory of investing.

"only buy funds that are going up. If they don't go up, don't buy them."