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Splits&#39 suffering goes on as gearing hits dividends

Several more split-capital trusts have come close to breaching their banking covenants and the sector has seen another round of dividend suspensions.

Exeter&#39s Dartmoor trust became the latest fund to suspend its dividend on Friday while on the same day Aberdeen&#39s media & income trust announced its gearing levels were in excess of acceptable levels agreed with its bank.

Aberdeen&#39s preferred income trust, which is invested in by many other split-cap trusts, also ran into trouble last week, suspending its dividend after breaching its banking covenant.

Analysts claim that more than 20 per cent of the 130 splits on the market have been forced to cut or suspend dividends over the past year.

Last week, Exeter wrote to IFAs warning that there may be more trouble ahead in the sector. However, many analysts believe last week&#39s fallout may mean the worst has now passed.

Exeter&#39s letter said: “We are concerned that not all reconstructions will be successful and a few trusts may be forced to wind up in distressed situations paying back investors less than expected. For investors in our unit trusts investing in splits, it must be remembered that our portfolios are more diversified than an investment in an individual trust. Nevertheless, the recent performance will be of concern to you and your clients.”

Christows head of investment trusts Nick Greenwood says: “We are getting real falls and some realism rushing into these prices now. But the sector does need some new money to stabilise the situation.”

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