The 4 Structures of ETFs

As the popularity of exchange traded funds (ETFs) continues to expand, it is important to understand the four different ETF structures. 

The first structure is that of a Unit Investment Trust, commonly referred to as a UIT.  A UIT is one of three basic types of investment companies.   The other two types are mutual funds and closed-end funds.

Here are some of the traditional and distinguishing characteristics of UITs:

A UIT typically issues redeemable securities (or “units”), like a mutual fund, which means that the UIT will buy back an investor’s “units,” at the investor’s request, at their approximate net asset value (or NAV) . Some exchange-traded funds (ETFs) are structured as UITs. Under SEC exemptive orders, shares of ETFs are only redeemable in very large blocks (blocks of 50,000 shares, for example) and are traded on a secondary market.

A UIT typically will make a one-time “public offering” of only a specific, fixed number of units (like closed-end funds). Many UIT sponsors, however, will maintain a secondary market, which allows owners of UIT units to sell them back to the sponsors and allows other investors to buy UIT units from the sponsors.

A UIT will have a termination date (a date when the UIT will terminate and dissolve) that is established when the UIT is created (although some may terminate more than fifty years after they are created). In the case of a UIT investing in bonds, for example, the termination date may be determined by the maturity date of the bond investments. When a UIT terminates, any remaining investment portfolio securities are sold and the proceeds are paid to the investors.

A UIT does not actively trade its investment portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, ten, or twenty specific stocks or bonds), and holds them with little or no change for the life of the UIT. Because the investment portfolio of a UIT generally is fixed, investors know more or less what they are investing in for the duration of their investment. Investors will find the portfolio of securities held by the UIT listed in its prospectus.

A UIT does not have a board of directors, corporate officers, or an investment adviser to render advice during the life of the trust and are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act, in particular Section 4 and Section 26.

The second form of an ETF is that of the grantor trust.  These ETF structures that is generally used to track and hold commodities, such as gold or silver, and currencies. A unique characteristic of these trusts is that the original composition of the underlying basket of securities stays fixed, so it doesn’t rebalance. If a grantor trust holds stocks, as opposed to commodities or currencies, the basket of stocks can become more concentrated as companies merge or are acquired. 

Grantor trusts enable investors to have a direct interest in the underlying basket of securities, they distribute dividends directly to shareholders and enable investors to have voting rights associated with the securities owned by the fund. When it comes to redemptions, these structures are unique in that an individual investor can request stock certificates, in round lots of 100, for each company in the trust.

Unlike many other ETFs, grantor trusts are SEC-registered investment companies and are regulated by the Securities Act of 1933. The most well-known family of grantor trusts are the HOLDRs family of exchange traded products.


A Regulated Investment Company (RIC), is the third structure.  RICs are regulated by the Investment Act of 1940 and are common to ETFs. They are registered with the SEC, use derivatives and portfolio optimization to minimize tracking errors and automatically reinvest dividends which are paid out to shareholders on a quarterly basis.

The fund manager of a RIC has the flexibility to modify holdings of the fund to meet investment objectives. Additionally, the use of securities which are not included in the corresponding index that is being tracked is allowed to construct the fund.

RICs can file as non-diversified funds, which allow fund managers to invest up to 50% of the fund in a single concentrated position.

The last structure type is the Investment Trust.  These types of ETFs are organized under the Securities Act of 1933 and can hold stocks, bonds, hard assets or derivatives. Most of these trusts are commodity-linked and include the SPDR Gold Trust (GLD) and iShares GSCI Commodity-Indexed Trust (GSG).

Disclosure: No Positions


About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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