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Kevin D. Mahn joined Parsippany, NJ based Hennion & Walsh as a Managing Director in 2004. Currently serving as the President and Chief Investment Officer of Hennion & Walsh Asset Management, Mr. Mahn is responsible for all of the Wealth and Asset Management products and services offered... More
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  • Unit Investment Trust (UIT) Assets Top $71 Billion In 2012

    According to the Investment Company Institute (NYSEARCA:ICI), data on the market value of unit investment trusts (UITs) issued and outstanding as of year-end 2012 indicates a total of 5,787 trusts with a value of $71.73 billion. According to reports submitted by the major sponsors of UITs to ICI, at year-end 2012 there were:

    · 2,808 tax-free bond trusts, with a market value of $15.76 billion

    · 553 taxable bond trusts, with a market value of $4.06 billion

    · 2,426 equity trusts, with a market value of $51.91 billion.

    Over the last 5 years, while the number of UITs outstanding decreased from 5,984 to 5,787, total net assets invested in UITs have grown by over 151%, starting at approximately $28 billion at the end of 2008 and finishing at the aforementioned $72 billion at the end of 2012.

    Unit Investment Trust (UIT) Total Net Assets (Millions of Dollars, Year-End)

    Source: Investment Company Institute, April 2013

    The popularity of UITs in recent years can be attributed to a number of factors, one of which is that many of the more popular UITs have primary investment objectives oriented towards current dividend income. These same UITs can invest in income producing securities that can tend to pay a higher level of current income when compared to more traditionally recognized income producing securities (Ex. Bonds). Such income producing securities can include, but are not limited to, closed-end funds (that may or may not employ leverage), preferred stocks, real estate investment trusts (REITs), business development companies (BDCs), master limited partnerships (MLPs) and dividend paying equities. These strategies have been particularly appealing within an interest rate environment with persisting record low yields of fixed income/ debt securities.

    For those who are not completely familiar with UITs, the following summary information may be beneficial to help better understand this product type.

    • Unit Investment Trusts (UITs) are a fixed portfolio of stocks, bonds or other securities. These types of portfolios allow investors to know what securities are held within a UIT as of the date of deposit, as well as the mandatory termination date of the trust. While it is not common, a trust may terminate early as described in the prospectus.
    • UITs offer an attractive opportunity for investors to own a portfolio of securities via a low minimum, typically liquid investment. As a point of contrast, while many actively managed funds continually buy and sell securities, thereby changing their investment mix, the securities held in a UIT generally remain fixed.
    • Some UIT securities are chosen according to a quantitative selection process determined by a sponsor while some are based on an index. Other UITs are chosen by experienced analysts or portfolio managers, who research the securities and screen them for various characteristics, according to specific objectives. Once securities are selected, the UIT portfolios are then supervised accordingly throughout the life of the trust.
    • While it is rare, a security held in a UIT may be removed from a portfolio under certain circumstances, such as a significant decline in credit rating. By and large, securities held in a UIT remain fixed for the life of the trust, regardless of market value.
    • At the maturity of a UIT, unitholders generally have three options:
      • Option #1: Rollover at a reduced sales charge - At a reduced sales charge, investors may roll over into a new series of the same trust, if available or potentially other UITs from the same of different sponsor of UITS, available in the primary market. It should be noted that maturity rollover is considered a taxable event. Please refer to each trust's prospectus for complete rollover option information. Investors should be aware that there is a time limit to notify the trustee of the rollover.
      • Option #2: Maturity - Unitholders may do nothing and allow the portfolio units to mature. The trust will liquidate and the unitholder will receive a cash distribution of the trust's proceeds, if any.
      • Option #3: In-kind distribution - Unitholders may generally request an in-kind distribution of the securities underlying the units if they own 2,500 or more units at either the time of purchase or maturity. Please see additional provisions set forth in the prospectus of each Trust in this regard.
    • Typical minimums for UIT purchases are 100 units; however, the minimums may vary based on the type of UIT. Higher minimums may also be required by each respective brokerage firm.
    • Unitholders may sell all, or a portion of, their units any day the stock market is open. These unitholders will receive the then-current net asset value of the units, based on the current market value of the underlying securities in the portfolio, less any remaining deferred sales charge, as of the evaluation time. As the market fluctuates, of course, so will the value of your units. Therefore, units may be worth more or less than what the unitholder originally paid.
    • UITs are priced at the end of each business day similar to mutual funds. The price is based on the market value of the underlying securities and includes cash and other assets and liabilities held by the trust.
    • UITs are available in a sales charge structure for commission accounts as well as for fee/wrap accounts. It is best to check with each individual brokerage firm to see if UITs are eligible for purchase on their fee/wrap platform.
    • Unit investment trusts are one of three basic types of investment companies. Investment companies are subject to stringent federal laws and oversight by the U.S. Securities and Exchange Commission (SEC). It is important to note that the SEC does not approve or disapprove of UITs or the securities within a given UIT or pass upon the adequacy of any prospectus for a given UIT. Investment companies are regulated primarily under the Investment Company Act of 1940. This federal statute is highly detailed and governs the structure and day-to-day operations of investment companies. Investment companies are also subject to regulations of the Securities Act of 1933, FINRA, and the Securities Exchange Act of 1934.

    We encourage all investors to educate themselves on all aspects of UITs, including risks and expenses, in addition to understanding each UIT's investment strategy in particular before considering an investment.

    Disclosure: Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs. Investors should consider the Trust's investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.

    Apr 25 2:04 PM | Link | Comment!
  • Why Cyprus Matters To Your Investment Portfolio

    If you never heard of the small island country in Eastern Europe called Cyprus prior to the last few weeks, you are not alone. The Republic of Cyprus is a popular destination for tourists along the Mediterranean Sea. Cyprus joined the European Union (NYSEARCA:EU) and the Eurozone in 2004 and 2008 respectively. The majority of their economy, as measured by Gross Domestic Product (NYSE:GDP) is derived from services from industries such as financial, real estate, and, of course, tourism.

    The country of Cyprus. Image Credit: Wikipedia.

    Cyprus only represents 0.2% of the total European economy. According to the World Bank, as of the end of 2011, the entire population of Cyprus stood at just over 1.1 million people. To put this in perspective the population of the state of New Jersey is 8 times greater than the entire country of Cyprus. Despite this small economic and demographic footprint, Cyprus has dominated the headlines for the past couple of weeks while being the scapegoat for down days in the stock market and recent market volatility.

    Part of the reason for the "Cyprus Effect" may be the feared precedent that the Cyprus lawmakers are setting by raiding the accounts of local bank depositors to finance their own financial bailout. According to Sky News, large depositors (i.e. those with greater than 100,000 Euros) stand to lose as much as 60% of their deposits if the Cyprus plan goes through as currently described.

    However, according to Benoit Couere, a member of the European Central Bank's (ECB) governing council, in a recent New York Times article entitled, "Head of Cyprus's Biggest Bank Resigns", the situation in Cyprus is unique from the other debt problems plaguing areas of Europe; namely in the P.I.I.G.S. countries of Greece and Spain, because Cyprus was actually in a bankruptcy situation. As a result, the solutions being considered for Cyprus are not seen as being likely or necessary for other countries in the Eurozone. Regardless, it does set a precedent for what other debt plagued nations in Europe may consider if they are faced with a similar financial quandary. Perhaps, even more daunting, it creates a potential bailout blueprint for other emerging and developed market countries outside of Europe. Some analysts have even expressed concern over the likelihood (albeit slim) of such a remedy being employed at some point in the future in the United States.

    Another reason for the market reaction to the recent financial actions in Cyprus may be that the "Cyprus Effect" may be a convenient excuse for some investors to take some of the profits that they realized during the historic bull market run that has major stock market indices such as the Dow Jones Industrial Average (DJIA) and the S&P 500 each hitting all-time highs.

    The events in Cyprus may also serve as anecdotal evidence to those investors whom believe that the market is due for a correction given that much of the market advance has been on the heels of government intervention without any meaningful and sustainable improvements attributable to the private sector in terms of economic growth.

    While a feasible argument can be made that the market may have rallied too high, too fast thus far in 2013 given the first quarter return of greater than 10% for the S&P 500 index, it is hard to argue that improvements are not being made in the economic foundation that underlies the capital markets. For example, the housing sector continues to be one of the bright spots in the U.S. economy. To this end, the real estate market recovery in the U.S. appears to not only be stabilizing but now also shows signs of picking up steam. According to the S&P/Case-Shiller Home Prices Index, which measures housing prices in the twenty largest cities in the U.S., prices are higher in all 20 cities over the course of the last year (January 2012 - January 2013) with an average price increase of over 8%. Furthermore, improvements, while meager and below historical recovery standards, continue to be made on the private sector job creations, spending and national unemployment fronts.

    At this time, I see more potential upside for stock market investors in 2013, yet still encourage investors to build and maintain diversified portfolios, incorporating a wide range of different asset classes and sectors where appropriate, due to the continued turbulence in Europe and uncertainty in Washington given the unknown outcome of the Fiscal Cliff - Round 2 negotiations related to spending and their impact on future increases to our nation's Debt Ceiling.

    Apr 05 10:25 AM | Link | Comment!
  • Forecasting The Price Of Gold In 2013

    At Hennion & Walsh, we tend to view investments in gold not only as a potential inflation hedge (recognizing that shorter term inflation forecasts remain muted presently) but also as an equity market volatility hedge. The latter in a similar fashion to the way that investors traditionally have gravitated towards fixed income investments when equity markets are volatile, or depressed, these same investors now seem to be increasingly looking to precious metals (gold and silver included) to help not only from a diversification standpoint but also to assist with total return potential given the record low interest rate environment that fixed income investments find themselves within currently in the U.S..

    Despite these compelling investment considerations, many investors seem to be dubious of considering additional investments in gold. I see this doubtful investor stance as being related to two potential factors:

    1) Volatility of commodity investing in general, and gold in particular, due to the great number of institutional and retail investors entering the gold investment market in the past 4 years. Please see chart below for the Exchange Traded Product (NYSE:ETP); SPDR Gold Shares (Ticker: GLD), which shows the asset growth in this product from the beginning of 2008 through the end of 2012, as evidence of the growing popularity of these types of "user-friendly" gold investment vehicles.

    (click to enlarge)

    Data Source: Bloomberg, January 11, 2013. Past performance is not an indication of future results.

    2) Tracking error of many of the "newer" gold related investment vehicles (Ex. ETPs)

    To better understand what makes the price of gold move, upwards or downwards, it is perhaps best to appreciate the relationship gold has had to the U.S. dollar historically. Prior to 1972, there was a direct relationship between the U.S. dollar and gold prices whereas each dollar was backed by claims for a specified amount of gold (i.e. the "Gold Standard"). When President Nixon removed our currency from the Gold Standard, the dollar no longer had a direct relationship with gold - or anything else for that matter. Instead, gold now has an indirect relationship with the U.S. Dollar as the price of gold in U.S. dollar terms changes as a result of a variety of economic and psychological factors. Given this relationship, absent tremendous global market stress, gold generally tends to move in an opposite direction from the U.S. Dollar, or more specifically, the U.S. Dollar index. In other words, as the U.S. Dollar increases in value, Gold, in turn, decreases in value and vice-versa.

    Given the low interest rate environment in the U.S., the U.S. Dollar has been weak against other foreign currencies in recent years, which, in addition to the other factors previously discussed, has helped fuel a rise in the price of gold since the great market meltdown of 2008. However, in the past year, as other foreign currencies have weakened in relation to the U.S. Dollar, the price of gold has pulled due to the relative weakening in conjunction with other market factors.

    The value of the U.S. Dollar, and its effect on the price of gold, for 2013 will be largely influenced by the upcoming 2nd round of Fiscal Cliff decisions related to spending cuts, the impending Debt Ceiling decision and further Federal Reserve actions related to interest rates in response to the ongoing, sluggish economic recovery. As a result, it is our contention that an client risk tolerance/investment objective appropriate allocation to precious metals is worthy of consideration for 2013.

    *It should be noted that at present, Hennion & Walsh Asset Management has allocations within its managed portfolios to PowerShares DB Precious Metals (Ticker: DBP), which itself has allocations to gold and silver respectively.

    Jan 14 11:05 AM | Link | Comment!
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