Looking for long-term growth?

Then investment trust opportunities might be for you. By Bill Fowler

Split-capital investment trusts have two elements. They consist of income shares, which receive all the income, have a fixed redemption price and are suitable for investors looking for a rising income flow; and capital shares, which earn nothing until the trust is wound up and its gains are paid out. As such they suit investors looking for growth.

Fleming Worldwide is a new split-capital investment trust being launched in conjunction with the bid for Fleming International High Income, also a split-capital trust and soon to mature. The new trust has an interesting portfolio of investments, including high yielding equities and emerging- market debt instruments. Investors should, however, be aware of the possibility of the new issue trading at a discount in the after-market owing to a general weakness elsewhere in the split sector.

M&G is also launching a new split capital trust, again connected with a bid for one of its existing split trusts, M&G Dual Trust, which has around one year to run. The new M&G Equity Trust has an unusually long life of 15 years. A unique but very welcome aspect of the new vehicle is the absence of up-front costs, as M&G has covered launch costs itself. However, this is offset by a higher than average annual management charge. The short-term outlook for the new trust is slightly disadvantaged by the fact that most other split trusts trade at package discounts, including those run by M&G.

Perpetual's Income and Growth Trust has been launched to coincide with the PEP season. This trust can be expected to enjoy strong support both in the offer for subscription and in the aftermarket, due to Perpetual's track record in this area (UK income growth shares) and their strong retail presence. We would highly recommend this trust to investors.

Following on from its highly successful smaller company unit trusts, Hill Samuel is launching a UK Emerging Companies Investment Trust. This is in the form of a placing and open offer, and should prove an effective means of investing in UK smaller companies. Availability of shares may be limited, however, as the issue is being capped at pounds 35m.

Finally, Templeton is launching a Central and Eastern European Fund, which will invest in the emerging markets of Europe. The issue will be in the form of a placing to institutions only.

In addition to the many new issues in the market there are also a number of 'C' share issues to raise additional capital, many of which look interesting. Scottish Asian Investment Company invests in the Far East, excluding Japan. Run by Murray Johnstone, the trust has enjoyed consistently excellent performance. The premium to net asset value that the shares had been trading on has now disappeared, which does not make the 'C' shares such an attractive proposition, as no warrants are being issued to subscribers to the 'C' shares. In fact the 'C' share holders will suffer, along with existing shareholders, from any future dilution from the existing warrants as they are converted into shares.

Pacific Horizon also invests in the Far East region, exclusive of Japan. Performance has been good in the recent past and the ordinary shares are currently trading at a small premium to net asset value. The low costs of the issue and the inclusion of warrants make the 'C' shares an attractive means of entry into the trust.

Herald Investment Trust is a UK smaller companies specialist. It has enjoyed good performance and the 'C' shares may prove an attractive alternative to the existing shares, which currently trade at a premium.

Another small company trust, Saracen Value, is proceeding with a placing with recall for existing shareholders. The trust's managers have a strong following, which has been earned by consistently good performance. Investors should note that this issue is not available to private individuals via an open offer.

For those looking for a more spirited investment, International Biotechnology Trust is having a placing and offer of 'C' shares, with warrants available on conversion. This trust invests in biotechnology shares, mostly in the USA. Currently it is trading around par, but it has traded as wide as a 25 per cent discount to net asset value. It is vital to appreciate that this is a specialised area for investment, which could produce volatile results.

A reconstruction in the trust sector is worthy of mention. LGT Asset Management is changing the investment policy of USDC Investment Trust, which will soon be renamed as GT Income and Growth Trust. Having previously been deployed on an international basis, it is now invested in UK equities. Shareholders will have the option of accepting shares in the new trust and/or units in GT Global Bond Fund, which may be redeemed for cash.

The change of policy has already been well received by the market, producing a re-rating in the share price. Nevertheless, the trust is still attractive on a medium-term basis, and the cash exit via the bond fund represents a significant uplift in value.

Bill Fowler is Investment Manager at GVG Asset Management.