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F&C urges investors to look at split caps

F&C Asset Management is encouraging investors to look at split-capital investment trusts.

Progressive growth fund manager Peter Hewitt believes there are plenty of investment opportunities in the split-cap sector since it is largely overlooked.

His fund invests mainly in zero dividend preference shares of listed split-cap investment trusts and Hewitt believes rehabilitation of the sector is on the way.

The FSA is still investigating alleged collusion and misselling of split-capital products which has tarnished the sector. A number of trusts are suspended.

Hewitt considers that a portfolio of good quality, sensibly financed zeros that stick to what they promise to do while avoiding high borrowings and investments in other splits, have the potential to produce impressive returns at a low level of risk.

High-quality zeros typically have a gross redemption yield of around 7 per cent, according to data produced by ABN Amro.

At the end of October, Jupiter had three splits that came to the end of their term while Gartmore Asset Management’s second Scottish national and the Murray emerging growth fund, managed by Aber-deen, were both wound up.

Hewitt believes Jupiter proved it was possible to provide successor trusts that offer good value in a variety of classes of shares.

He says: “It is important to recognise that not all trusts in the split-cap sector have been affected by the specific problems of high bank debt and cross-holdings in similar trusts. The rollover options could yet prove to be a shot in the arm for the declining universe and they could be said to represent a new optimism for zeros.”

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