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How we run a split capital investment trust
Sarah Emly, manager of the JP Morgan Income and Capital Trust (JPIP.L), explains how her trust works and how it seeks to meet the needs of all of its shareholders.
Split capital investment trusts may appear somewhat baffling, with their separate share classes and multiple monthly factsheets.
Sarah Emly, manager of the JP Morgan Income and Capital Trust (JPIP.L), explains in a Citywire video interview how her own trust works and how it seeks to meet the needs of all of its shareholders.
The trust has zero dividend preference shares, which only provide capital growth at a pre-established redemption price; ordinaries, which provide income and a share of the remaining assets once the trust is wound up, after prior ranking shares; and ‘units’, which are a combination of the previous two share classes.
Emly, who runs the trust alongside John Baker, details how the directors decide its dividend policy. She acknowledges that the trust’s structure is complicated, but says in terms of its assets, ‘we look at it as one pool of money.’
Read about the performance of the trust’s zeros and ordinaries.
The manager adds that the outlook for financial stocks in Britain remained uncertain in the near-term, and that despite the fears over the global economy, UK dividends were likely to post double-digit growth next year.
The sector is still recovering from a scandal in the early years of the last decade, when trusts with zeros found themselves laden with debt following the dot.com crash and were forced to repay bank loans first, leaving many zero shareholders with nothing.
The Association of Investment Companies has a useful guide to split capital investment trusts.
2 comments so far. Why not have your say?
ynys
Nov 05, 2011 at 21:11
If as is was the original idea an investment trust was spit into capital and income shares period. There should be no problem as in rough times it was just a case of riding the storm until the tide eventually turned. When bank loans were used to buy assets, then there was no riding out the storm the banks just demanded repayment when the trust was least able to do so and they collapsed (Trusts which did not buy primary shares but invested in the shares of other split cap trusts . . . which invested in . . . shares of other split . . . completed the scandal of doom)
Unlike capital shares, zeros have supposedly guaranteed capital return. If repayment were to fall due at a time when the fund is doing particularly badly then bad consequences should follow. It is not entirely clear whether the fund mentioned above uses any bank loan borrowing (very dangerous).
Unless very sure of the ground, the word barge pole springs to mind!
report thismasud butt
Nov 06, 2011 at 21:36
I don;t trust Any IT & their Managers with Zeros . They were all involved with the
fiddle which caused big losses to innocent Investors like my self. They knew what they were doing.
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