The best and worst: Zero dividend preference shares

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The Independent Online
ZERO dividend preference shares from split capital investment trusts aim to deliver pre-determined capital growth. They have been promoted as a low-risk investment, but the return from a zero depends on how well the underlying assets perform and how well-covered the zero's redemption price was at the time the trust was launched.

The Association of Investment Trust Companies has recently started scoring the various classes of split capital shares according to how much the trust's underlying assets need to grow to meet their targets.

Broadly, the higher and more positive the score, the less likely the trust is to meet its targets. This will be reflected in the market price of the zeros.

A high 'hurdle' rate can be mitigated if the trust has a long life ahead of it in which to achieve its aims.

Out of those with the five highest scores, Sphere has a little more than three years to run, while Gartmore Value has a little over 2 1/2 years and City of Oxford just over three.

Exmoor Dual has nine years to go and Olim Convertible just over six.

Not all investment trusts are members of the AITC, and others have high scores, including the M & G Income and Recovery trusts, although these have nine and 10 years respectively to run before redemption .

River Plate & General is one of the oldest investment trusts, and started out with an undemanding structure, according to Kim Jones, an investment trust analyst at S G Warburg.

(Table omitted)

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