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What is A Split Capital Investment Trust?

Companies / Investment Funds May 03, 2024 - 08:23 PM GMT

By: Mark_Adan

Companies

Investing, especially if you are new to it, can be a minefield of confusing terminology. In addition, the uncertainty of whether you have invested in the right place can lead to concern that your funds may not perform in the way you had hoped.

In this edition of our blog, we help explain what a split capital investment trust is and why it could be the investment type for you.




Split-level capital investment trusts are fixed lifespan investment trusts that offer more than one share class to investors. Something many investment trusts or companies don’t. This can be attractive to investors as it delivers a mixture of both growth and income. Let’s dive in and look at investing in split capital investment trusts.

What are split capital investment trusts?

Split capital investment trusts are a small number of trusts where investors are offered more than one share class. The idea being that the shares, regardless of the share class, are invested in the same assets but offer different levels of growth and income.

In most cases, there will be two share classes available. One offers steady growth but no income and the other offers a mix of both growth and income. Some split capital investment trusts also offer a third class of shares known as capital shares.

Where two share classes are available, you will see them listed as zero shares, or zero dividend preference shares, and ordinary shares. In the Aberforth Split Level Income Trust, shares are held across a variety of industries including, consumer staples, energy, financials, health care and industrials. We offer two classes of shares in this trust, zero dividend preference and ordinary.

Typically, a split capital investment trust is launched with a fixed lifespan, the Aberforth Split Level Income Trust, for example, was launched in 2017 and has a planned winding-up date of 1st July 2024. In some cases, winding up dates for split capital investment trusts will be rejected in a shareholder vote which means you could see your proportion of assets may not be issued to you when you initially expected.

What is a zero dividend preference share?

A zero-dividend preference share, or a zero as it is often referred to, is the share class on offer in a split capital investment trust where capital growth is offered, but not income. With zero dividend preference shares, the growth is predetermined over a set period, in many cases seven years. Furthermore, as preference shares, when the investment trust is wound up, those holding zero shares stand to receive their assets first.

What are ordinary shares?

The ordinary shares on offer in split capital investment are those that offer shareholders all of the income from the trust investments, including the amount that holders of the zero shares would receive. The holders of ordinary shares also stand to receive any capital that is left over after the holders of the zero shares have received their shares.

What is a capital share in a split capital investment trust?

The capital shares in split capital investment are the third type of share class and not one you find in all split capital investment trusts. These shares are of a higher risk level and shareholders get any of the capital growth left at the wind-up of the trust after ordinary shareholders have received their shares.

Are split capital investment trusts a risky investment?

Split capital investments are seen as riskier than the more conventional investment trusts. This is because instead of taking loans from banks for investments, the trust borrows dividends off the zeros to give to the ordinary shares. As with any investment, it is always wise to seek the advice of financial advisors.

That being said, there are benefits to investing in a split capital investment trust.

What are the benefits of investing in a split capital investment trust?

Split capital investment can provide investors with a host of benefits that, depending on their investment goals, can be beneficial over both long and short term.

  • Investors can receive returns as income or capital gains. Being able to pick whichever works best for tax purposes allows the fund to deliver more preferable results to those who invest.
  • Those investing for income rather than growth receive the best possible income as the amount received comes from dividends which are paid out on a bigger capital amount compared to what is in a non-split capital investment trust.
  • For those looking for capital gains, growth investors benefit from higher capital gains than those that other investments may bring. This is because they profit from the investments of the income investors too.
If split capital income trusts sound like a viable investment opportunity to you, speak to our team at Aberforth, we would be delighted to assist you with beginning your investment journey with us. Should you wish to see the historic data for the Aberforth Split Level Income trust, simply view our trust payment history.                                                                                                                                                                                     

By Mark Adan

MarkAdanSEO@gmail.com

At Animuswebs.com, we specialise in content-led Online Marketing Strategies for our clients in the Marketing, Finance, Business industry and other sectors. With our professional writing team and our superb content creation programmes we achieve great marketing successes for our clients.

Copyright 2024 © Mark Adan - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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