Richard Prvulovich's Stable Growth unit trust to aim for 8.4% gross yield pa
Gartmore's forthcoming unit trust of zeros will have a 1.5% annual management charge, making it more expensive than competitor products from Framlington, Exeter, Aberdeen, Premier and Investec.
In addition the Gartmore fund has a 1.5% charge on withdrawals during the first five years, taken from capital although the initial charge on the product is 1.5%.
Gartmore Stable Growth is to be managed by Richard Prvulovich and has a minimum investment of £1,000 or £3,000 for Isa investments.
It is designed both for new investors and as the rollover vehicle for the Gartmore Scotland investment trust, also managed by Prvulovich, which winds up on 31 July.
Prvulovich helped launch the Investec Capital Accumulator fund two years ago which has a 1% annual fee while Aberdeen Progressive Growth, Framlington Absolute Growth, Premier Zero Preference and Jupiter Preference each have 1.25% fees. The Exeter Zero Preference Fund has a 1.2% annual fee.
Gartmore's fund has a 21 day offer period at £1 per unit, open until 11 July, prior to the first day of dealing on 1 August. It will be listed in Autif's UK Other Bond sector.
Prvulovich, who also manages the Gartmore Monthly Income fund and Gartmore Split Cap Opportunities Trust investing entirely in split capital trust income shares, is aiming to provide investors with an estimated gross redemption yield of around 8.4% pa, which falls to around 7% after charges.
The portfolio will be made up of around 35 holdings from the zeros universe of 100 different shares.
Prvulovich's process includes looking at the quality of underlying portfolios, meeting management, scrutinising the split structure, analysing hurdle rates, the amount of growth necessary on an annual basis to pay zero investors in full at the redemption day, and cover, the existing assets backing the zeros. Although no zero has ever failed to pay out in full, Prvulovich believes this could change.
He said: 'I wouldn't be entirely surprised if within the next two years a zero perhaps missed paying back in full. It is a more significant risk than it has been previously.'
He said risk in split capital trusts had increased as barbell structures have become prevalent and trusts have become more focused on specific areas of the market.
Also more split caps now gear compared to two years ago, adding further risk as more charges are put against capital than income.
Prvulovich said that the size of the zeros universe had increased from 60 to 65 two years ago to around 100, while the market capitalisation has increased to £3.7bn from £2.5bn two years ago.
Prvulovich said: 'The scope for a manager adding value now is much greater than it was because of not only the increase in the size of the investible universe but the increase in the diversity of that universe. Every zero is different and comes from a split capital investment trust that is unique.'
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