What Are The Different Investment Trust Share Classes?Understanding the different Investment trust share classes is probably the most comlex aspect of the UK investment trust market. To show why this is a complex area, consider that there are: Ordinary shares Preference shares Split capital shares - which include income shares, capital shares and zero dividend preference shares ( described more fully here ) 'C' shares Warrants The private investor is well advised to read carefully about the characteristics of these different holdings as it can make a huge difference to understanding the potential risks and rewards of investing. Regrettably, there has been much controversy about the way that split capital investments were described and sold which lead to investors losing lots of money - as these scandals always seem to to - in the early 2000s. In part, these losses happened because of greed, certainly on the part of the salesmen and fund marketers, and probably also on the part of the investors looking for guaranteed 'easy' profits. As is often the case in these circumstances, the financial professionals seemed to have won...
Preference shares work in an almost identical manner to any others issued on the London Stock Exchange. They would normally pay a fixed annual dividend distribution before any money is paid to ordinary shareholders. The dividend from these shares is paid in preference to others. Should the investment trust be 'wound up', holders of preference shares will be paid ahead of other owners. 'C' shares can be created by the board of directors. The 'C' stands for conversion. Normally, such shares would be created if the trust stands at a premium to net asset value - which is a rarity - and there is clearly a demand for them. These new shares would usually bear the cost of their issue and will be quoted separately from other share classes. After a pre-determined time period, these will be converted into ordinary shares. Warrants offer a right to buy shares at a fixed price within or on a pre-set date. They are not actually shares themselves and have no rights to income. They are traded as a separate issue on the London Stock Exchange until the date of their exercising. If they are still held after expiry they have no value. This means that the warrants are traded at a very significant discount to the actual shares. It also means that they are a very high risk for investment and would normally be more suited to those with a tradering mentality. To read more about related topics, please visit:
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