Doing the splits in the proper manner
Share
It is some eight years since the so-called magic circle of split capital investment trusts fell spectacularly apart. Since then splits have become a somewhat dirty word, with few new funds coming to market.
This is hardly surprising given the negative image presented of the sector, with TV documentaries depicting some of the major players as robbing old ladies of their savings. Compensation schemes later followed, jobs were lost and after taking massive losses many funds were closed.
The problem is that the only splits people seem to remember are those highly geared funds that clubbed together to invest in each other to prop up their share prices. The so-called “magic circle”. However, what many forget is that the original split capital concept dates back to the 1960s.
Steering clear of investing in complex areas or using complex capital structures, the original splits were made up solely of income and capital shares. Income shareholders were entitled to all the income generated from the investments held by a trust during its fixed life, while at wind-up the capital shareholders received the trust’s capital value, plus any capital value it had accrued during that time.
”Some of the major players were depicted as robbing old ladies of their savings”
With this in mind, Invesco Perpetual this week announced details of a brand new split-cap fund that harks back to the split-caps of old. While zero dividend preference (ZDP) shares may be becoming increasingly popular, it has decided against a such a share class, saying it would be too expensive for the other shareholders.
Instead, Invesco opted for the 1960s model of just income and capital shares, with the investment portfolio being an unconstrained UK equity mandate.
It is the group’s first launch of a split cap vehicle since 1999, although it successfully rolled over the Invesco Perpetual Recovery Trust in 2005. Split launches from other groups have also been rare.
Those with long enough memories will remember that Invesco was one group that emerged from the splits crisis with its reputation intact. It will, however, be well aware of the stigma attached to launching anything “split capital”, which is perhaps why it opted for the title Dual Return fund.
Nevertheless it is understood Invesco has been convinced investor demand exists for this type of split, especially among private client wealth managers.
