Each week, a professional investor tells us where he'd put his money. This week:Ben Yearsley, Wealth Club.
With the end of the tax year looming, higher earners will be starting to consider ways of minimising their tax bill. Investing in a pension, which has historically been the investment tax vehicle of choice, no longer looks so attractive. Since the start of the tax year, those earning more than £210,000 a year can now only contribute up to £10,000 a year.
Many may therefore look to other options, which is where venture capital trusts come in. VCTs invest in small, growing businesses and offer very generous tax breaks for private investors. Investors receive an upfront tax rebate of 30%, and any growth is tax-free, as are dividends. There is a maximum investment of £200,000 a year, giving an income-tax rebate of up to £60,000. The minimum holding period is five years.
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Recent rule changes have meant VCTs must now focus more on long-term growth at the expense of later-stage deals in more established companies. This has led to a shortage of quality products. Some of the bigger VCTs that historically have raised £30m or more in a tax year are either not raising money or only raising a small amount. Below I have listed my three top picks for this tax year, all of which I have invested in personally. But they are likely to raise the amount they are seeking relatively quickly, so don't leave your investing until 4 April!
Pembroke VCT (LSE: PEMV) is the newest entrant to the VCT world, originally launching in 2013. It's managed by Oakley Investment Managers, founded by entrepreneur Peter Dubens in 2002, and focuses on earlier-stage, higher-growth firms in the premium consumer brand sector. Health, media, apparel and hospitality are the areas of choice. Despite being new to VCTs, Oakley's pedigree is impressive and this VCT is well worth considering.
Unicorn Aim VCT (LSE: UAV) is the largest VCT investing in the small stocks on the Aim market, and has assets of £150m. It is managed by Chris Hutchinson, one of the best Aim investors. The portfolio is well diversified, with more than 70 qualifying holdings, and more than 60% of firms held paid a dividend in the last financial year. Buying Aim stocks via a quality manager helps spread risk it isn't all about ultra-high-risk, blue-sky start-ups. Unicorn has an excellent record of capital growth and consistent dividends.
Being the smallest of the Maven VCTs hasn't stopped MavenIncome & Growth 6 (LSE: MIG6) having a well-diversified portfolio of more than 40 holdings as it has co-invested with the other five VCTs. Maven's team is spread across six offices nationwide, which helps get access to deals that other managers may not see. Support services, insurance and the vehicles sector are the biggest in the portfolio. Making a profitable exit from an investment is equally, if not more important, for VCTs and this one has had 11 successful exits in the last three years.
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