Fund of the week: VCTs are an overlooked opportunity

Nothing ventured, nothing gained or so it seems. In the 12 months ending 30 November 2011, six of the top ten performing funds were venture capital trusts (VCTs), says Leonora Walters in Investors Chronicle.

On the Association of Investment Company's list, Maven Income and Growth VCT 4 was ninth. The fund, which focuses on generating long-term capital growth and income, has a diversified portfolio in riskier unquoted and Aim-listed British firms.

VCT dividends are free from income tax and profits made from share disposals are exempt from capital gains. "VCTs are an overlooked opportunity," manager Bill Nixon told Shares magazine. Over the last decade VCTs have been "reinvented", with poorly performing managers and sub-scale operators "weeded out".

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Nixon, who has 30 years of banking and private-equity experience, is doing something right. The fund has a healthy record over one, three and five years, with a share price total return over three years at 225% and net asset value (NAV) total return of 129.6%.

The trick is the fund's regional presence. Investment teams meet 400 to 500 companies a year, but only invest in five or six. The fund, which trades at a discount to NAV of 1.9%, will sell down its Aim portfolio and redeploy funds into income-producing private ventures.

Aim is not a "happy hunting ground", but there are opportunities in growth businesses while bank finance remains tight. "Our focus is on identifying the good, solid, cash-generative businesses left in Britain," Nixon adds. "There are no loss-making companies in our portfolio."

Contact: 020-7463 6452.

Malvern Income and Growth VCT 4 SFund top ten holdings