Sensitivity measures for split-capital investment trusts

Statistical measures of risk based on historical data are useful tools in assessing risk for conventional investment-trust securities; but they are of limited use for securities of split-capital investment trusts, and an alternative approach is proposed in this paper. By differentiating formulae for the discounted cash flow, with respect to the underlying fundamental variables, ‘sensitivity measures’ can be derived for most securities of split-capital investment trusts. These sensitivity measures show how the present value of expected future cash flows will vary as the real discount force changes, the real force of increase in the income (or capital value) of the underlying fund changes, and the estimated force of inflation changes.