View more on these topics

Budget makes zeros look attractive

Zero dividend preference shares (ZDPs) have become a more attractive investment proposition following the recent budget, according to Wins Investment Trusts (Wins).

Once the darling of the investment trust industry, the popularity of ZDPs suffered in 2001 because of their connection in the split capital crisis.

However, according to Wins the recent proposed increase in the higher rate of tax to 50% means that zeros look attractive from a taxation point of view with capital gains tax of 18%.

Simon Elliott, the head of research at Wins, says this represents the first chance for a sizable issuance of new ZDPs for some time.

ZDPs are designed to deliver a predetermined rate of capital growth although the capital is not guaranteed. According to Wins the existing market for these securities is limited.

The median gross redemption yield (GRY) for a covered ZDP is currently 7%, which Elliott says compares favourably with the yield on cash deposits. He says: Although the risk profile is considerably different, we believe investors will consider investing in zeros despite memories of the split capital crisis.

At a time when investment trusts are struggling to renew bank facilities, a well-covered ZDP issue is one option to install structural gearing into the companys structure.
However, many current conventional investment trusts will be wary of pursuing this option due to the ramifications of being re-categorised as split capital investment trust.


‘Hypocritical’ CML in attack on brokers

Leading mortgage brokers have slammed the Council of Mortgage Lenders’ “hypocritical” attack on intermediaries as the FSA suggests that proc fees may be scrapped in favour of adviser charging.

ECB cuts rates by 0.25%

The European Central Bank (ECB) has cut interest rates by 25 basis points and decided to pump €60 billion (£52.7 billion) into the eurozone economy. Interest rates now stand at 1% and the marginal lending facility was cut by 50 basis points to 1.75%. The Governing Council will also embark upon an “enhanced credit support […]

Aifa calls for “law of agency” under RDR

The Association of Independent Financial Advisers is calling for the “law of agency” to apply under the retail distribution review, with regulatory dividends for advisers who act on behalf of their clients.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm