ZDPs

[DavidM13]

As the blessing was given by admin regarding highlighting new data features for investment companies. If anyone is interested in the above shareclass you can now find data on the AIC website https://www.theaic.co.uk/aic/find-compa ... -analytics

No advice offered - just data from Morningstar presented in an orderly fashion.
Thanks
David

[Alaric]

Not very many left, I suppose the problems of the early 2000s greatly reduced the market in these.

https://publications.parliament.uk/pa/c ... 071102.htm

quotes the number of split capital trusts then in existence at 134.

[DavidM13]

That is exactly right only about 15 or so. I was a splits analysis for a data provider back in 2000. I learnt so much about Incs, Caps, Ord Incs and ZDPs and all that knowledge basically became redundant within a couple of years

But my mum was so proud as I was quoted in the Telegraph on some figures so not entirely wasted.

[everhopeful]

I have read the Telegraph for many years and used to take its financial comments quite seriously back in 2000. As a result I put a small legacy which my wife received into Aberdeen ZDPs. It was wiped out and I do not think my wife has ever believed I know what I am doing ever since despite successfully managing a substantial portfolio for us over the last forty years. David I hope it wasn't your comment in the Telegraph that stimulated my downfall!

[DavidM13]

lol no it wasn't thankfully!! I will see if I can dig it out at the weekend when I get my computer back.

It was after things had already been going South and I just provided some figures and a word or two about how many were in trouble from memory. The article was circa 2004 so your damage had already been done.

[Lootman]

I have read the Telegraph for many years and used to take its financial comments quite seriously back in 2000. As a result I put a small legacy which my wife received into Aberdeen ZDPs. It was wiped out and I do not think my wife has ever believed I know what I am doing ever since despite successfully managing a substantial portfolio for us over the last forty years. David I hope it wasn't your comment in the Telegraph that stimulated my downfall!

From what I recall Aberdeen were the worst offender. Zeroes were supposedly the safest tranche of shares within the splits structure, and for them to fail smacks of utter incompetence and greed on the part of the fund manager.

My analysis of the Splits disaster was that there was nothing fundamentally wrong with the concept of Splits per se. The idea of having different share classes of ITs to cater to classes of investors who wanted different things was essentially a good one. Some investors want capital gains and no income. Others want income and no capital gain, or even accept erosion of capital. Splits were useful for converting capital into income and vice versa. They also enabled some tax mitigation strategies.

Rather the problems were caused by factors that are often seen in any bubble. The overuse of gearing and debt. And the incestuous habit of ITs investing in other ITs to artificially boost the headline yield.

[forlesen]

I think it's been quite a few years since there was an authoritative and complete analysis of current ZDP offerings available online (e.g. without gaps across half the table entries), so thanks to AIC for providing this.

[DavidM13]

No problem. Does anyone here remember the splitsonline website? Was built around 2002 and finally killed off around 2012. That was an amazing and free tool for all things splits run by a very handsome and clever gentleman.

[forlesen]

Yes, splitsonline is where I used to go for ZDP information.

DavidM13, looking more closely at the tables provided, can you explain the calculation of the Cover? I'm specifically looking at the various classes of UIL ZDP, and in particular wondering why the 2026 ZDPs apparently have a higher cover than the earlier issues.

Surely both the earlier issues of ZDP (2020, 2022, 2024) and UIL's £50M of bank and other debt all have precedence over the 2026 ZDPs in the event of a winding up? I would have thought the "real" cover for the 2026 ZDPs was at best the current net assets divided by the total debt that has the same or higher precedence than the 2026 ZDPs, which (looking at the latest UIL factsheet) would be £326.5M / £223.5M = somewhere under 1.5.

It's quite a while ago, but I'm fairly sure that's the way splitsonline used to work...

[SKYSHIP]

Lootman - "My analysis of the Splits disaster was that there was nothing fundamentally wrong with the concept of Splits per se."

Absolutely right. The problem was the lemming-like behaviour of both PIs and some brokers who, especially after the subject was raised in PMQs in the HoC, sold their holdings regardless of fundamentals and regardless of price.

This of course provided many with really great opportunities and great returns, in the case of the ZDPs which I followed, right up to 2005.

I well remember my first "discovery" of what was going on when buying a few , too few, PIGZ - BC Property Securities ZDPS. Bought at 25p versus the totally ungeared property assets of c150p! They were taken over by the managers some 18months later -they at least knew the true value!

Many of us chatted together on the JDT thread over on ADVFN. Since 2005 that thread has become my personal record thread. Over the years followers have all but disappeared.

[SKYSHIP]

Forgot to say that there were indeed a few bad cases, as sadly related by everhopeful above, but with the vast majority of Splits there was absolutely nothing wrong at all...

[DavidM13]

Yes, splitsonline is where I used to go for ZDP information.

DavidM13, looking more closely at the tables provided, can you explain the calculation of the Cover? I'm specifically looking at the various classes of UIL ZDP, and in particular wondering why the 2026 ZDPs apparently have a higher cover than the earlier issues.

Surely both the earlier issues of ZDP (2020, 2022, 2024) and UIL's £50M of bank and other debt all have precedence over the 2026 ZDPs in the event of a winding up? I would have thought the "real" cover for the 2026 ZDPs was at best the current net assets divided by the total debt that has the same or higher precedence than the 2026 ZDPs, which (looking at the latest UIL factsheet) would be £326.5M / £223.5M = somewhere under 1.5.

It's quite a while ago, but I'm fairly sure that's the way splitsonline used to work...

Hi Forlesen,
Annoyingly there are two different industry calculations. Splits on line (run by Fundamental Data and taken over by Morningstar in 2008) provided both “Cover” and what they referred to as “Debt Cover” and that is probably what you remember. Now since the reduction in consumer interest and number of this shareclass in existence they are just providing one calculation – “Cover”.

The Cover method which we are displaying takes the gross assets, subtracts debt, subtracts any prior ranking ZDP final charges, subtracts assumed future charges (interest fees, management fee and assumed wind up costs) and divides by the final charge on the ZDP.

The “Debt Cover” method has the future charges and bank debt on the denominator rather than the numerator which leads to rather a different outcome. I can see arguments for both. Intuitively you would expect the later dated ZDPs to have a lower cover but using the first formula this is not the case as these particular ZDPs have a lower final charge.

If you hover over the definition you will see we made the formula clear as were aware of these differences.

[Hariseldon58]

Going back to the problems with Splits in the early 2000’s , I had lots of investment trusts then. Around 6 months before the problem came to public notice, I bought a soft back A4 sized Guide to Investing published by the FT , it had some useful stuff and a couple of pages on Split Capital Trusts , it happily detailed the circular nature of some trusts holdings and spelt out the potential problems, I took notice and decided it wasn’t worth bothering with them.

I was astonished when they got into trouble some time later, when information in the public domain spelled it out.....I have always liked the FT since !

[Alaric]

I was astonished when they got into trouble some time later, when information in the public domain spelled it out.....I have always liked the FT since !

Splits were trying to achieve a bond like guaranteed return out of equity investment. That works "most" of the time. The early 2000s were a period when it didn't. Two storms as far as the UK market was concerned, the more general bursting of the dotcom bubble coupled with the fall out from Equitable Life, namely the dumping of equities as backing for "with profits" funds.