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Fund firms reassuring investors over safety of zeros

Leading fund managers are fighting back against speculation that the split-capital investment trust industry is in danger of spiralling out of control.

Last week, Framlington wrote to its IFA clients to reassure investors in its recently launched absolute growth fund, which invests in zero-dividend prefer- ence shares, that they should not be alarmed by negative media coverage.

Gartmore has also come out fighting for the splitcap market, urging investors to remember that the majority of splits are stable investments.

The move follows recent warnings from the consumer press that zeros may not be as safe as providers have stated.

While no zero has yet failed to pay out, pundits have predicted that the market may soon see some zeros defaulting.

Framlington marketing director Craig Walton says a few splits have run into trouble but there is no need to condemn the whole industry. He says: “Zeros are not the simplest thing but we are trying to put out a product which avoids the pitfalls.”

Gartmore stable growth fund manager Richard Prvulovich says: “There has been considerable concern about the sector. Some of this is justified owing to some of the more highly geared companies also concentrating their portfolios in the more volatile sectors of the market.

“However, it is important to recognise that the vast majority of splits have sustainable capital structures and well diversified portfolios.”

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