Herd behaviour to create buying chances

Panic selling of split capital investments trusts could create ‘fabulous’ buying opportunities, according to trust expert Nick Greenwood.

Greenwood, a director of stockbroker Christows, told citywire.co.uk the difficulties suffered recently by European Technology and Income (ETCU) could trigger mass selling of split caps to leave ‘some very cheap assets’.

The trust, the largest split capital fund launched this year, broke its banking covenants for the second time last week because of the slide in European technology stocks. It was forced to pay back £40 million of a £175 million loan from Bank of Scotland.

The split cap, run by Aberdeen Asset Management, originally raised a £200 million loan but had to repay £25 million earlier this year when it first broke banking covenants.

Greenwood said many split cap investors were confused by the funds, did not have the expertise to foresee covenant breaches and could take flight altogether.

He pointed out the prices of two split caps, Technology & Income (TCH) and Media & Income , had fallen today over fears they could also break banking covenants. Both funds are also run by Aberdeen.

Media and Income has fallen 5p today to 65p while Technology and Income has slipped 13p to 100.5p.

Greenwood explained: ‘There are interesting looking situations out there and a falling market can go beyond the point where good value is reached to mind-bogglingly cheap.

'You could get a hell of a lot of panic selling and once it has started something like Media & Income could look very interesting.’

There was also a potential ‘double discount’ play he added, where a fund of investment trust suffers a widening discount while its holdings suffer the same fate.