The demise of Splits?



I read that the long-expected rollover of M&G High Income (launched 20 years ago) is going to be a total car crash, imho. If you want the closed-end option then you will be rolling over from an Income share class that has produced a total return of nearly 400% over its life (through 3 market dives), and yield of about 8-10% over this period to the JPMorgan Elect trust yielding just 3.9%.
In the world where there is such a high demand for income, almost at any price, this shows weakness from the board. M&G only runs one trust, this is/was it. It has a cap of £400m so it is not small, and one would have thought it could still go forwards even at half the size. JPMorgan Income & Capital (JPI) is less than that and it rolled over successfully in 2008! JPMorgan also seem to have missed a trick in trying to get the trust over to them as a split and maybe rolling JPI into it the following year. The fact that they have not makes me wonder what will happen to JPI on rollover. With only £58m in the Inc Ords it is possible if it loses some support that it will also go to Elect too.
I also realise that Splits may be classed as complex investments so this also is in the mix. Prepare your obituaries now!


I’ve never invested in them because of the split cap affair @james_pigott but I know you are a bit of an expert in them.

I think I was frightened I wouldn’t understand them and get my fingers burned.


That was a long time ago and rules were quickly put in place to stop another spiral. Like most things; most of them are no good. If you think of the ZDP as a bank loan it can be simpler to see through to the real asset, but yes, they are geared (structurally) and can result in no value. AGIT is the last of the serious income pundits, Premier’s two trust as well but they are small. Beware, some trusts have used ZDP as cheap finance but they are not being run like a split although the original shares now have a headwind.


Ranger Direct issued ZDP’s earlier this month as a form of debt.

I wonder why split cap trusts are dying off? Although I haven’t used them much myself, they have always attracted a loyal following from canny investors, like yourself @james_pigott.

There are specialist newsletters covering them. Maybe if would be useful to have an article on here explaining how they work. Could drum up some interest in them a little.


I did!


@wickedinvestor I think they are dying off because they are costly to rollover, trickier to understand, regulators want them as sophisticated investment, IFAs are lazy, management houses etal want an easy sell, market is risk off, sell-side analysts never cover them (how often do you see a split in a top 10 list of income providers?), where do I stop?!


And this one here too @james_pigott

Thank you


I think given trusts can raise long term debt at lower rates of interest, than offering zeroes - they probably are out of favour at the moment. Normalisation of interest rates may occur sometime, but until then why issue zeroes.
Lowland has just added debt at sub 4% for example. I’m slightly suspicious of trusts that have rolled over their zeroes (like JZ Capital) as they seem to be boosting the trust size to raise additional management fees. (I’m holding onto JZ Capital as the discount is too tempting).

For me I’ll be taking the cash exit from M&G High Income - which despite the poor share price showing on the income shares, has been a good investment overall (and I’m hoping for some uplift on the wind-up or at least removal of the bid/offer spread).

Interesting to see how well Rights & Issues Income (RIII) share price has performed when it lost the split-cap structure (though no zeroes for that trust).

In addition to M&G High Income & JZ Capital, I also have Aberforth Geared Income (AGIT) - but that is also due a wind-up next year.

I think the desire for high income options is partly being met by trusts committing to return a % of NAV or rebasing their dividend by using capital returns - recent examples being International Biotech (IBT), Standard Life Private Equity (SEP).

From an investor perspective, Split caps are harder to understand, not helped my them often being split out in performance tables in magazines (even when the zeroes make a small proportion of the assets). As an example Rights & Issues is now included in the UK Smaller Companies trust tables - and is the best long term performer! (despite getting no coverage).