The collapse of split capital investment trusts at the start of the decade left many in the IFA industry caught holding the baby last time they recommended “low risk” zero dividend preference shares so are they likely to be in a hurry to recommend them this time round?
JP Morgan vice president of product development for investment trust Richard Plaskett says splits got some terrible press in the early 2000s but the structures were pushed too far.
He says: “There was lots of gearing in these things, they were investing in each other and it created a perfect storm which combined with markets falling meant that people lost an awful lot of money.
“But I think they have still got their good points especially in a world where capital gains tax is taxed at 18 per cent and income will be taxed at 50 per cent if you’re a very high rate taxpayer under the new regime.”
Hargreaves Lansdown investment manager Ben Yearsley says: “Zeros are obviously much more attractive but on the other side of the split cap you’re going to have an income share and who wants that? Traditionally in a split-cap you would have an ordinary share class and a zero and the ordinary share class would be quite high yielding.
“If you issue more from one side you’re going to have a quite high yielding share class and you could end up with a large amount of income and no-one to buy it.”
Kohn Cougar managing director Roddy Kohn says: “One of the good things which often comes out of these calamities is that regulation tightens and therefore the prospects of a repetition of the fiddles that were being conducted within the industry are far less. In that context it makes them a safer investment for high net worth investors.
“Nonetheless the complex structure of split capital investment trusts is one area which historically people struggle to get their heads around. I think there’ll be a lack of appetite in general by IFAs to get involved in the split capital sector after the last fiasco.”
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