|
May 01, 2001
Merrill Lynch Drops Defined Asset Funds in the U.S.
by Mark Thomsen
Socially responsible investors now left with few options for unit investment trusts.
SocialFunds.com --
Merrill Lynch Investment Managers (MLIM) recently announced that it was going to discontinue the
creation of unit investment trusts, or what it calls Defined Asset Funds, in the United States.
One of MLIM's Defined Asset Funds was the Principled Values Portfolio, which employed a series of
social screens. Socially responsible investors now will be hard put to find an investment vehicle
with a fixed group of securities with a fixed time period.
"We want to move toward focusing resources on
products and services that are more aligned with [our clients] evolving needs," said Erik
Hendrickson, MLIM's Vice President of Media Relations. "In addition, we want to manage our
business strategically by focusing on investment vehicles from our broad product line that afford
us the greatest opportunity for growth."
A unit investment trust is a collection of stocks
or bonds that are packaged together and held by a trustee bank for investors, with the bank acting
as a custodian. The trust is not insured by the bank or by the Federal Deposit Insurance
Corporation (FDIC). It is possible, however, for individual investments within a trust to be
guaranteed by a government agency, such as a municipal bond.
UITs invest in a fixed basket
of securities for a fixed amount of time. The creators of the trust sell slices of the package, or
units, to investors. UITs offer diversification, professional management and daily liquidity, and
the fixed set of securities may beneficial to certain investors from a tax perspective. UITs now
include corporate trusts, municipal trusts, equity trusts, fixed income trusts, foreign equity
trusts, foreign income trusts, junk bond trusts, state municipal trusts, insured trusts and
asset-backed trusts.
Merrill Lynch's Principled Values Portfolio had used a unique
screening process that began with companies listed in the Domini 400 Social Index. It then had
Kinder, Lydenberg, Domini & Co. identify companies taking steps to increase workforce diversity.
In the final step the portfolio managers analyzed the financial merits of the remaining companies.
Investors concerned about the environment and looking for a fixed batch of stocks with
professional management could consider Light Green Advisor's Environmental Leadership Trust. It is
not a unit investment trust; Light Green is administering it as separate accounts on an unlimited
time period. Light Green defines which companies are in the Trust, and buys and holds the
corresponding stocks for investors. The makeup of the Trust is refreshed annually by Light Green.
"We think over time, companies that are better environmental actors will do better," said
Jonathon Naimon, President of Light Green Advisors. "We thought it made more sense for the
investment characteristics (of the Trust) to match the investment strategy."
The
Environmental Leadership Trust consists of 30 S&P 500 stocks in most industry groups. Currently
the Trust includes companies such as Alltel
(ticker: AT) and Bristol-Myers Squibb (BMY). LGA
employs a best-of-class methodology that includes industries that may be shunned by other social
investors.
"We are on of the few socially responsive options available that take advantage
of pollution-prevention in the heavier industries," said Naimon. "We think the pollution
prevention in those industries is important and should be rewarded. We also do not include
financial services companies, which to some extent are filler from an environmental perspective,"
he added.
It is difficult to say whether Merrill Lynch's move portends a more general
decline of unit investment trusts. Merrill Lynch Investment Managers' Hendrickson said that while
Defined Asset Funds would continue to be created in other Merrill Lynch markets, those other
markets were also under review. Investors should not hold their breath waiting for new socially
responsible unit investment trust products.
©
SRI World Group, Inc. All Rights Reserved.
Top
|
