What is a key characteristic of a UITF compared to traditional investments?

A key characteristic of a UITF is that it invests in a diversified portfolio. This is significant because diversification helps to spread risk across a range of assets, which can potentially lead to more stable returns over time. UITFs pool money from multiple investors to create a collective investment fund that is managed professionally. This means investors benefit from exposure to a variety of securities, such as stocks and bonds, which can mitigate the risks associated with investing in a single asset or a limited number of securities.

In contrast, traditional investments may not always provide the same level of diversification, particularly if an individual investor is purchasing individual stocks or bonds without the advantages of pooling resources. Also, traditional investments often require more significant capital to achieve diversification effectively.

The other options mentioned do not define a distinguishing feature of UITFs as clearly. For example, the guarantee of principal is not a characteristic of UITFs since investments can fluctuate in value. Tax-exempt status typically applies to specific types of investments (like municipal bonds) rather than all UITFs. Lastly, UITFs are not inherently associated with higher fees compared to all traditional investments, as this can vary widely based on the specific investment and management structure.