Four misconceptions in the retirement community around Collective Investment Trusts (CITs):
Myth #1: Performance for a strategy will be the same regardless of the investment vehicle.
Reality: If the strategy holds all the same securities, how can there be discrepancies when comparing the performance of the strategy in a mutual fund relative to the strategy in a CIT? In fixed income strategies, certain securities may not be available to a CIT manager as they were to a mutual fund manager when it launched its fund, prompting the CIT manager to choose different options.
Myth #2: CITs lack transparency and periodic reporting. Participants want a ticker, so CITs aren’t suitable for DC plans.
Reality: Today, as more advisors see the potential benefits of implementing CITs, this misconception is being debunked. Most fund managers create quarterly fact sheets for their CITs and provide a data feed to aggregators, such as Morningstar. One important milestone was reached last year when Wilmington Trust partnered with Nasdaq to register the first CIT tickers on the Nasdaq Fund Network. As of April 2021, there were more than 467 tickers available on the network.
Myth #3: CITs are only for big plans.
Reality: While this might have been an accurate statement a decade ago, it no longer reflects the marketplace. Many asset managers have recognized CITs as a distribution opportunity, given the benefits they can potentially offer advisors and their plan sponsor clients, and have proactively lowered or even eliminated required asset minimums. Furthermore, as more advisors see the value of CITs, they will become more commonplace among the traditional advisor-sold segments of the DC market by plan asset size.
Myth #4: CITs are always cheaper than a mutual fund equivalent.
Reality: CITs are not always the cheapest share class. For example, if an R-6 mutual fund share class is at scale, it may be more cost effective. Navigating across a multitude of share classes and investment vehicles can be confusing and offers advisors an opportunity to help their clients identify the best vehicle to fit a plan sponsor’s goals.
Learn more about CITs as investment vehicles in defined benefit and defined contribution plans, what a CIT is (and what it isn’t), the benefits of CITs, the factors that are driving their adoption, and myths surrounding CITs.
This material is for educational purposes only and is not intended as an offer, recommendation or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. There is no assurance that any investment strategy will be successful. The information in this material has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions, estimates and projections constitute the judgment of Wilmington Trust and are subject to change without notice.
There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
Wilmington Trust, N.A. Collective Investment Funds (WTNA Funds) are bank collective investment funds; they are not mutual funds. Wilmington Trust, N.A. serves as the Trustee of the Wilmington Trust Collective Investment Trust and maintains ultimate fiduciary authority over the management of, and investments made in, the WTNA Funds. The WTNA Funds and units therein are exempt from registration under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended. Investments in the WTNA Funds are not deposits or obligations of or guaranteed by Wilmington Trust, and are not insured by the FDIC, the Federal Reserve, or any other governmental agency. The WTNA Funds are commingled investment vehicles, and as such, the values of the underlying investments will rise and fall according to market activity; it is possible to lose money by investing in the WTNA Funds. Participation in Collective Investment Trust Funds is limited primarily to qualified retirement plans and certain state or local government plans and is not available to IRAs, health and welfare plans, and certain Keogh plans. Collective Investment Trust Funds may be suitable investments for participants seeking to construct a well-diversified retirement savings program. Investors should consider the investment objectives, risks, charges and expenses of any pooled investment company carefully before investing. The Additional Fund Information and Principal Risk Definitions (PRD) contains this and other information about a Collective Investment Trust Fund and is available at https://www3.wilmingtontrust.com/content/dam/wtb-web/pdfs/2021AddtlFundInformationBooklet.pdf or ask for a copy by contacting Wilmington Trust, N.A. at (866) 427-6885.