Close Fund Management has designed an index-tracking investment trust that is made up of zero-dividend shares.
The Close UK index growth fund has a five-year term, during which it will track the performance of the FTSE 100 index. Its objective is to produce growth of around 41 per cent over five years by reflecting the composition of the FTSE 100 through zero dividend shares.
Investors will get the maximum final return even if the FTSE falls by 20 per cent by the end of the term. The return is reduced for larger falls and if the index drops between 31 per cent and 40 per cent per cent, investors get only their original capital back. They will lose half their capital if the index falls between 41 per cent and 50 per cent and will lose all their money if the index falls beyond this point.
The FTSE 100 index rose from 3962.81 points on November 20, 1996 to 5298.69 points on November 20, 2001. Stockmarkets are still relatively low and some investors may find it is a good time to invest, before it recovers.
This fund differs from the Close FTSE 100 trust and the Close FTSE income and growth trust in that it is not a split-capital trust with different classes of share. It is likely to appeal to fairly sophisticated investors who want a predetermined return at a set date and without the need for income.
Zeros have a reputation of being a low-risk investment, but this view has been challenged recently because of the tendency of some zero dividend shares of split-capital trusts to invest in each other, which increases the risk.
According to Standard & Poor's, Close FTSE 100 income and growth (zero) is ranked 34 out of 69 trusts over one year to November 19, 2001.