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&#39Significant investment opportunity&#39 in zeros

More than half of investors in the Investec extra income trust have chosen to roll their cash into the company&#39s fund of zeros following the winding up of the extra income fund at the end of October.

Rather than taking the £6m in cash, 965 – 55 per cent – of the 1,751 investors chose to roll their stake over into Investec&#39s capital accumulator fund, which invests in zeros.

While this is the majority of investors, the £6m represents only 11 per cent of the £53m trust.

The news will come as a boost to the embattled split-caps investment trust sector and especially zeros, which have been widely criticised for they way they have been marketed as low-risk products.

The extra income trust was wound up on October 31 as planned, seven years after its launch in November 1995. The holders of the zeros within the trust received their expected payment in full with capital gains of over 8 per cent a year over the life of the fund.

The capital accumulator fund, managed by Alastair Mundy, has outperformed the FTSE All Share by 30 per cent since its July 1999 launch.

Investec says one of the reasons why it has done so well is that in early 2001 it pulled out the majority of its holdings in what has become known as “new” zeros, those with a high level of gearing and bank debt.

Mundy says: “The bad news on poor-quality zeros is colouring the public&#39s perception of zeros as a whole. But it is wrong to tar all of them with the same brush. There is a huge difference between high and low-quality zeros and the market&#39s failure to distinguish between them is creating a significant investment opportunity.”


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