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&#39Barbell trusts may shatter confidence&#39

Investment trusts managed with a barbell approach could shatter investor confidence in the entire investment trust sector, according to research by Edinburgh University.

The research also criticises the so-called “magic circle” of split-capital investment trust managers, who all hold shares in each others trusts.

The research, published in the Journal of the UK Society of Investment Professionals this month, criticises barbell trusts as being both riskier and more costly than most trusts due to their higher levels of gearing.

The report says the negative publicity which they are set to generate when they inevitably hit hard times is set to damage the reputation of the whole industry.

Barbell trusts hold two distinct portfolios – a growth portfolio which invests in a specialist investment sector and an income portfolio comprising bonds and high-yielding investment trusts.

The research highlights the case of the Framlington NetNet trust, which last week announced it was to liquidate its income portfolio to repay its bank debt. As a result, the fund&#39s net asset value has fallen below £8m, some 92 per cent below the £100m raised at its launch last March.

Report authors Dr Andy Adams and Robin Angus say: “Initial and recurring costs to ordinary shareholders of barbells are much higher than they may appear at first sight. Our motive in writing this article is to increase investor awareness of the issues and risks involved.”

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