Hey there. I'm not a huge fan of split corporations, but yes they've done quite well over the course of the pandemic.
Here is a very quick overview of how a generic split corp would work. Again, this can vary from corp to corp, but generally here is how it works:
Say you have a $100 stock and it pays a $5 dividend for a yield of 5%. They'll "split" this stock in half, and give the dividend all to the preferred stock. So now you have 2 $50 stocks, one that pays a $5 dividend. You've now essentially doubled your yield.
But, those shares have zero rights to the appreciation of the stock. All of that is reserved for likely what you're looking at, the capital shares. That $50 stock pays no dividend, but is leveraged in the fact that it faces the full brunt of price movements. So, quick example of this.
If the $100 stock moves $10, it has increased only 10%. However, because the preferred shares do not get any of this appreciation, the capital shares get all of it. So, your $50 split portion is now worth $60. Even though the stock moved 10%, your capital shares increased 20%.
The same can be said on the way down though. In fact, preferred shares are guaranteed their capital back. So, if the $100 stock lost half its value, the fund would be closed down, preferred shares paid their capital out, and you as a capital shareholder, despite the underlying stock losing only 50% of its value, have lost all your money. This is an extremely rare situation, simply to highlight the way these funds work. If you look at most split corps during market crash environments, they have significantly more volatility. This is because of the leveraged nature of the shares.
This leads me to another very common misconception investors make. Split corps pay a distribution, not a dividend. You may be confused as to why I stated above you own the capital shares, which pay no dividend, but you get a huge yield. This is because the funds distribution can be a bunch of things, including return of capital, interest, capital gains etc. Ultimately, the preferred shareholders get priority, which is why you'll see that FTN's distribution was slashed because of the pandemic, while preferred shareholders continued to get paid (I've attached a screenshot.)
Who are these funds suited for? I'd say for retirees, focused on maintaining income rather than capital appreciation. If you look at a long term chart of FTN, it has done nothing but lose money. This is because it is very likely taking money out of the NAV (Net asset value) of the fund to pay the distribution. When NAV decreases, so does the stock price.
Does this make sense? These are crazy complex products, and must only be purchased by people who know exactly what they are and what their goals are.