Pavilion Asset Management has made its debut on the investment trust scene with the Pavilion geared recovery trust.
This split-capital investment trust aims to provide a combination of income and growth by investing in undervalued stocks mainly in the UK and in the shares of other investment trusts.
A growth portfolio makes up 60 per cent of the trust and this focuses on larger companies with relatively low share prices that look likely to recover in the future. There are no sector weightings and which gives the trust freedom to invest wherever share prices look set to recover. Given the downward movement of global stockmarkets, this may be an ideal time for the theme of recovery stocks.
The remaining 40 per cent goes into an income portfolio consisting of income and geared ordinary shares of other split capital investment trusts.
There are two types of share geared ordinary shares with a yield of 8 per cent a year and zero-dividend preference shares with a yield of 9 per cent a year for six years. This enables the trust to meet the different objectives of investors.
The trust would suit more experienced investors who are looking for either a combination of income and growth through the ordinary shares, or those who will be satisfied with a pre-determined capital return through the zero-dividend preference shares.
However, investment trusts like this tend to invest heavily in other investment trusts which themselves invest in investment trusts. This suggests a lack of diversity and may be a source of risk for investors.