Split capital investment trusts could be in line for a renaissance, spurred on by the advent of real estate investment trusts (REITs), according to one fund manager.

Peter Hewitt, manager of F&C Progressive Growth Fund, said that the coming of REITs in January 2007 could be set to revive new issuance of zero dividend preference shares, known as zeros.

Split capital investment trusts which issue two or more different types of share, including zeros collapsed during the bear market of 2000 3, due to a heady mix of high gearing and substantial cross holdings.

Thousands of investors used the vehicles, traditionally considered lower risk, to plan for school fees or save for retirement, as they aimed to deliver a pre determined capital return after a fixed date but they collectively lost tens of millions of pounds.

Speaking at a briefing in London this week, Hewitt said: Although, in the past, traditional split capital investment trusts have issued 'zeros' to boost dividend yields for income shareholders, the real future growth story for split caps is likely to come from REITs.

There are already several property based splits which have issued zeros, but the REIT model which is free of corporation tax provided most of the revenue earned is paid out in dividends could provide an additional impetus to the zeros market.

Hewitt said property companies with large bank loans which decided to convert to the REIT model could consider zeros as part of their debt structure, as this would enable them to offer shareholders higher dividend yields.

Unlike a bank loan, a zero does not charge interest, which will help improve the revenue account of the REIT and allow it to pay out a higher income stream to shareholders, he said.

The dividend yield on an average property company of 2 to 3 percent could be increased by 1 to 2 percent by converting to the REIT model, said Hewitt, whose fund targets high quality zeros and similar investments.

Other types of investment vehicles and business could also act as a catalyst to a revival in the splits market, he added.

Other unrelated areas are beginning to use zeros as well, he said, for example, private equity trusts such as the Bear Stearns Private Equity Trust and certain operational companies such as Brighton-based retirement housing company Economic Lifestyle where zero coupon debt is more appropriate than traditional bank debt to the business model.

Investment