Masterclass: Split Capital Trusts are under researched and can be very profitable as a result


My last article was about standard vanilla Investment Trusts, their benefits over open ended funds and what to watch out for. This article adds anothe
[See the full post at: Masterclass: Split Capital Trusts are under researched and can be very profitable as a result]

The demise of Splits?

Always found it a bit hard to get my head around @james-pigott, still not sure I’ve fully got it but this helps.


I’m surprise there’s only 16 split capital trusts in existence according to that Trustnet link, I thought there would be a lot more.


If the ordinary shares are undated then the Split Cap IT might not need to be rolled over into a new one (or int an OEIC, which is sometimes an option that is made available), it can continue as before if replacement borrowings can be raised to replace/repay the expiring zeroes. These new borrowings might be in the form of a bank loan, or could be an issue of new zeroes with new terms and redemption date.

An example is JZ Capital Partners, which has undated ordinaries and had zeroes due for redemption in 2009 of all years - i.e. the height of the credit crisis (or should that be ‘depth’…?) - but which was able to issue a new set of zeroes to replace them, allowing the ordinaries to continue as before. Interesting, though, to see that it looks as if these zeroes will be eventually be redeemed by the recent issues of CULS rather then more zeroes.

Another example is Utilico Investments, which issed a new tranche of zeroes to replace the ones which expire this year. In fact, UTL now has a series of zeroes to gear the ordinaries, and these came about at the same time as a rollover of a previous ZDP issue.

Then there is Acorn Income Fund too. This trust was geared with a bank loan which became due for repayment. The bank, however (RBS), did not want to extend a new loan so the board took the decision to issue zeroes instead - and to increase the level of gearing in doing so.

These are examples of why I view zeroes as being just another form of gearing for undated ordinary shares rather than bringing an inherently different set of risks to them when compared to a loan. Dated ordinaries being a different proposition, though, due to the uncertainty about what will happen to them at the time of redemption.

The structures of Split Caps tend to be a lot simpler these days. At the turn of the millenium there were issues that had all four types of share classes mentioned in this article. I think that there was even a trust or two launched that had more than these - but there have been a few ‘weekends’ between then and now so I might have dreamt them… But there was certainly an Annuity share class that was issued in some cases.

@steelman, that list on Trustnet looks to be a bit of a botch at best because there are trusts which are missing, duplicated or included in error.

Missing is the aforementioned Acorn Income Fund, along with Electra, F&C Private Equity, JPM Private Equity, NB Private Equity, Picton, Utilico Investments and Vinaland. But you can fine JMP PE’s zeroes under the ZDP tab. I have a feeling that there are a few other trusts too, but ones that are a bit more off the beaten track: there used to be a web-site called (which just redirects to Morningstar these days) and this provided all that you would want for as far a Split Caps are concerned, and there were some trusts on there that I can’t properly recall now (one, I think, involved investments in India or similar).
Both of the Henderson trusts are conventional.
Investors Capital isn’t usually included in the definition of a split-cap trust, but if it is being included then so should Murray International which has a similar structure.

And the potential problem with the AIC is that they tend to hold detailed data on AIC member trusts only, and not all trusts are members.


I was still at school during the Split cap scandal but though I didn’t know what it involved it put me off because I thought they were 1 - too complicated and 2 - dodgy and capable of underhand manipulation.

I still don’t think I’m ready to invest in them yet but, I dunno, I’m more informed by @james-piggot 's article and @arkwelder 's kind of supplementary piece.


I’m a little bit older than you @lukas and remember the split cap affair, which damaged the whole investment trust world.

Truth is they are a little bit complicated and I don’t think suitable for most investors because of that. Regular global or UK investment trusts are fantastic for ordinary investors like myself.
@arkwelder is obviously a more experienced investor, certainly more than I am and @james-pigott is a financial adviser, I believe investments like these are more suitable to them.

Incidentally, there are discussions on Split caps on the Motley Fool forums too if you want to learn more Lukas


How come Trustnet misses all those split cap funds that @arkwelder talks about. Is it even too obscure for them.

Although this article from James Pigott is illuminating I’m not really tempted to invest in them. They’re just a little bit complicated.

James and Ark obviously understand them better than the rest of us and are maybe prepared to monitor them closely but I like not to have to worry too much about my investments and I think I just would worry if I invested in these.

I couldn’t find anything about them on the website @derekw






I will point out that not all Split Caps were involved in the scandal, although all were caught in the crossfire. Those Splits from M&G, for one, did not indulge in having crossholdings of other Splits, and it is crossholdings that accelerated the problems at that time (in my view).

With the burst of the DotCom bubble, assets of all types of trusts fell in value. Add in gearing - of the ordinary kind - and you ended up with the situation where a fall in the share price of one trust had a negative impact on the NAV of a second trust which would likely lead to a fall in its share price, and either directly or indirectly (by including more trusts), the fall in the price of the second trust had a negative effect on the NAV of the first trust leading to a further fall in its share price - etc, etc, etc.

Then bring in the different share classes of Splits and their gearing, i.e. the order of their different capital entitlements, which exaggerated their falls even further and the result was wipeout - but not a wipeout for all of them, it must be said.

I will also say that there were warnings beforehand of the potential for this to be problem; possibly in the late 1990s, but definitely by the year 2000 - being the year when I decided to take the cash when a conventional IT that I held was, at its continuation vote, rolled over as a Split Cap, and the warnings being the reason for my decision. Might have read them in the Financial Times, but would definitely have been the paper version because it was, to all intents, just about Before Internet (I’m old enough to remember then too…).
I do accept the comments that Splits can be complicated and are, therefore, best avoided unless the investor is prepared to look into them more deeply: this makes good sense with any kind of investment. But I would differentiate between the Splits that are around now and those which were around 12-15 years ago. And especially the current Splits that consist of just two share classes, undated ordinaries and zeroes. There are pluses and minuses to gearing with zeroes compared to straightforward loans, but even loans can have complications in the form of their convenants, which might require that trust assets are sold in the event that the value of the assets fall and don’t provide a sufficient level of security for the loan - this can be the case for ITs that invest in equities too, and not just the ones that hold properties.


A bit more reading:


Right now, my only exposure to Splits is through three holdings of ZDPs. I’m not avoiding the other types of share class for any fundamental reason, it’s just that my investment needs are currently being met by more conventionally structured ITs.


I’m on holiday right now so thanks to @arkwelder for filling in the gaps and explaining things further. A simple way to view the basic ZDP and Ords split is to think of it like a vanilla trust with a bank loan. The ZDP is like the loan. It is just different as you have some stats to view around how well the “loan” is covered. They are not as complex or opaque as hedge funds or even many of the complex debt based ITs launched since the last crash.

and yes, most websites, analysts etc. never produce the full list or understand the simple fact that there are two or more share classes to choose from. One can buy units which consist of, normally, one ZDP and Ord Inc share too.


I think you chaps have done a sterling job attempting to explain an area of the investment trust world people struggle with. Between the article and the comments from @james-pigott and @arkwelder you’ve pretty much got everything covered chaps.

Splits can can be profitable if you’re prepared to do some homework on them. McHattie/Tipsheet covers them occasionally:




Just came across @derekw comment. Splits today are very different from the ones in the past. They are not that difficult to master are they?


Oh I think they’re a little bit out of the ordinary @james-pigott but your article did explain them well and the comments from both you and @arkwelder in particular are particularly helpful.

What I enjoy about websites likes this and the communities they seem to generate around them is how helpful people can be sometimes, often to complete strangers.

Having said that, though Motley Fool is very good too, and ADVFN seems to attract a lot more angry people.


Glad to be of help @Malcolm