Portfolio unitization is a method for tracking an investment portfolio’s performance and value by using units and unit values. What makes this investment management method similar to mutual funds, ETFs, pooled, multi-asset, and other investment types is the ability of portfolio unitization to group investments into a singular portfolio that you can then manage as a single investment type.
Here’s more on what portfolio unitization is and how it works.
What is Portfolio Unitization?
At its core, portfolio unitization involves combining multiple assets within an investment portfolio into a single unit. These units, also known as investment units or fund units, represent a proportional share of the overall portfolio’s value. By grouping assets, investors can hold fractional ownership of a diversified portfolio, while asset managers can streamline the administration and reporting processes.
How Portfolio Unitization Works
Portfolio unitization involves creating a unitized fund, which is a type of investment fund structure that uses pooled money to invest with individually reported unit values for investors.
Here is how the process works:
- Assets, such as stocks, bonds, real estate, mutual funds, etc. are aggregated into a single investment vehicle.
- The asset values will come from the market value, and that determines the value of the investment units.
- Investors purchase or redeem units of the unitized portfolio, usually through a fund management company.
- Each unit represents a proportionate share of the portfolio’s underlying assets.
- Asset managers monitor and manage the unitized portfolio and make investment decisions based on the portfolio’s objectives.
- Changes in asset allocation or investment strategy show in the overall portfolio investment unit values.
A lot of this may seem familiar, which is the point. Portfolio unitization strives to simplify investment strategies.
Benefits of Portfolio Unitization
Portfolio unitization offers several advantages for investors who want to manage their portfolios more efficiently and accurately.
Each investor has the same exposure to the investment strategy and performance of the fund. There is no deviation or drift from the target asset allocation or risk profile.
Operational efficiency and simplification
Portfolio unitization reduces the number of transactions, paperwork, and fees involved in buying and selling individual securities. It also allows for automated trading and reporting through standardized systems and processes.
Data integration and reporting
Portfolio unitization enables investors to access and analyze their portfolio data easily and consistently with the same tools and metrics used by mutual funds or other industry standards.
Investors can decide when and how much to invest or withdraw from the fund. They can also switch between different funds or sub-accounts within a unitized structure if they want to change their investment objectives or preferences. Unitized portfolios often have daily liquidity, allowing investors to buy or sell units on any business day.
Unitized portfolios offer investors access to a diversified mix of assets, reducing concentration risk and potentially enhancing returns. Individuals with limited investment capital can participate in a broader range of investments through fractional ownership.
Portfolio unitization allows investors to benefit from the expertise of professional asset managers who oversee investment decisions. Asset managers continuously monitor the portfolio, adjust allocations, and rebalance holdings to optimize performance and manage risk.
How to Unitize Your Portfolio
You can start the process of unitizing your portfolio with some basic steps.
Choose your investment objective
As with any investment, it helps to start with a goal. Define your investment goal, risk tolerance, time horizon, and asset allocation for your portfolio. This will determine what type of assets you will invest in and how you will diversify your portfolio.
Create your unitized fund
Keep your unitized fund separate from your other investments and accounts.
- Decide how many units you will create initially and what will be the initial unit value.
- Decide how often you will calculate and update the unit value, whether daily, monthly, or on some other schedule.
Invest in or withdraw from your unitized fund
Stay active. Buy or sell units in your unitized fund according to your investment plan. Keep track of the number of units you own and the current unit value. Record any income or expenses that affect your fund’s value.
Monitor and evaluate investment performance
Measure and compare your returns with other funds or benchmarks that match your investment objective. Review your portfolio periodically and make any adjustments if necessary.
Some may find a lot of these steps easier said than done. A good place to start is with a portfolio unitization service.
Getting Started with Portfolio Unitization Services
If you want professional help with portfolio unitization, speak with a reputable unitization service. Some things to consider with a portfolio unitization service include:
- Unitization design
- Unitization administration
- Unitization support
The financial landscape changes constantly, and it’s hard to keep up. Still, a diversified portfolio remains the best defense against market fluctuations. For these reasons and many more, investors should consider what portfolio unitization can do for their investment goals.