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JPMorgan puts trust in split-caps

JPMorgan Asset Management has launched a split capital investment trust for new investments and as a rollover option for investors in the existing JPMorgan Fleming Income & Growth Investment trust.

The existing trust will be wound up in December, the end of its planned life. The new trust will have a fixed life to November 30, 2016 and as a split-cap trust, it will have different share classes to cater for different needs – income shares and growth shares.

The income shares will have an expected initial net dividend yield of 6 per cent on the income shares and the yield will be 4.1 per cent on units that combine income and capital shares.

The trust will invest mainly in UK equities, with up to 40 per cent in a range of other assets to provide a diverse source of income. These assets include fixed interest instruments, property funds, other investment companies, structured products and hedge funds. Although the trust will have the FTSE 350 index as a benchmark, the manager will not be constrained by its weightings. The trust’s equity portfolio will initially hold 50-70 stocks and these will be expected to yield 3.5 per cent.

The trust can be gear up to 60 per cent in theory, but in practice the limit will be 35 per cent.

The company says that split caps have had their difficulties; there is still a place for well-managed and well-structured trusts that can deliver a high income yield and offer varying risk and reward profiles within a single product. It thinks the new trust could benefit from the impact that European mergers & acquisition activity in that European companies are bidding for UK companies as a result to the UK government’s relaxed approach to foreign ownership of UK companies, which will push up the prices of the UK companies at the centre of the bid.

However, some investors may still be put off the split-cap sector as a result of the problems faced by some trusts about five years ago. These had highly geared portfolios, which invested heavily in shares in other trusts and breached their bank covenants when markets fell.

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