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Fund moves raise a question of trust Industry naivete over split trusts

It has been disappointing to read some of the opinion on split-capital trusts recently. Sadly, there appears to be a great deal of naivete in the advisory marketplace.

The quality of training the AITC has offered has been excellent. However, it should complement an adviser&#39s basic understanding of the products upon which he advises rather than milk for new babies.

The situation which has tarnished split-capital investment trusts is disturbing. Is it an adviser&#39s problem peddling very high return investments with inappropriate anticipated yields based on the underlying investment components or is it the market&#39s problem by responding to demands from the advisory industry?

The concept of split-capital investment trusts remains sound. Indeed, there are some very attractive opportunities at present from old fashioned trusts, where some very high income is attainable and potential for capital appreciation – even if markets make no headway. However, advisers need to understand the problems and the benefits of gearing. With hindsight, the excessive exposure to cross-holdings (and the multiplication of management fees to the underlying investment groups as a result) should have been tempered but at the same time, we believe it is arrogant for investment funds of any ilk to ignore technical opportunities sometimes presented by others on the market.

For example, why is it that anyone is encouraging investors to buy unit trusts in the UK smaller companies&#39 sector when there is so much choice within ordinary investment trusts yet with discounts to net asset value of 25 per cent or more in several cases? If I managed a general fund, I should buy plenty of these instead of doing every-thing myself with direct stock.

Advisers need to be prepared and knowledgeable. They cannot simply sell that which is being promoted to them. Remember that endowment policies for mortgages were sold the most in 1988 at the peak of the property bubble and when interest rates were well into double digits. When costs and tax were taken into account, how many of those advisers really expected investment performance to exceed interest being paid on mortgages?

Philip Milton

Philip J Milton & Co,

North Devon

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