Last year was dominated by disruption and uncertainty. But 2020 also saw venture capital trusts (VCTs), introduced 25 years ago to support small, innovative businesses, emerge as the investment of the moment.
Firstly, with tax rises of more than £40bn a year “all but inevitable”, according to the Institute for Fiscal Studies, VCT tax relief looks increasingly attractive. When investing in VCTs you receive up to 30% tax relief – a £3,000 saving on a £10,000 investment. All returns, typically paid through dividends, are also tax-free and you can invest up to £200,000 a year.
Secondly, VCTs invest heavily in the technology sector, one of the few to have largely dodged the Covid-19 bullet and likely to play a key part in any recovery. Indeed, many VCT-backed companies have experienced a surge in demand recently.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Covering all the bases
The Baronsmead VCTs comprise the Baronsmead Venture Trust (LSE: BVT) and the Baronsmead Second Venture Trust (LSE: BMD) and cover all the bases. They jointly give investors exposure to over 150 companies – a combination of old-style management buyouts (MBOs), Aim investments, new growth-capital investments, and Gresham House equity funds (including a large allocation to its top performing micro-cap fund).
It has been a rewarding mix. The two VCTs have been able to maintain one of the most generous dividend policies of any VCT: a target yield of 7% (exceeded in the last three years). Both VCTs have proven resilient and have now recovered from Covid-19 setbacks. Indeed the pandemic has boosted demand boost at a number of portfolio companies, such as e-commerce platform Moteefe, the UK’s fourth fastest-growing tech company. Over the decade to 30 September 2020, the two VCTs produced a respective net asset value (NAV) total return of 94.3% and 86.3%.
Home to two unicorns
A champion of pioneering technology companies with global ambitions, Octopus Titan VCT (LSE: OTV2) is today the largest VCT, with almost £1bn of assets. It has a well deserved reputation for spotting, supporting and exiting rising stars.
Two of its portfolio companies – Zoopla and Cazoo – have achieved unicorn status (a valuation of over $1bn). Previous exits include trade sales to the likes of Microsoft, Twitter and Amazon. Investors in the current offer get exposure to around 80 young tech companies, the majority of which have kept growing throughout the Covid-19 crisis. Over the ten years to September 2020 the VCT has generated a NAV total return of 121.4%.
Managed by the same investment house as the highly regarded small and micro cap Marlborough Funds, the Hargreave Hale Aim VCT (LSE: HHV) provides access to some of the fastest-growing firms on Aim.
The VCT now appears to have more than fully recovered from the crisis. Two thirds of the portfolio of more than 100 companies is in healthcare and technology. The star performer is recipe-box provider Gousto, which experienced a surge in demand during the Covid-19 crisis and achieved unicorn status in November 2020. Over the ten years to September 2020 Hargreave Hale Aim VCT has generated a NAV total return of 107.6%.
-
Average earners now face £200,000 inheritance tax bill - how much will your estate owe?‘Double whammy’ of inheritance tax changes means even the estates of those earning the average UK wage could face bills, not just the very wealthy
-
Are the wealthy dodging more tax than previously thought?A new report suggests tax non-compliance among the wealthy could be worse than previously imagined. Is an overly complex system partly to blame?
-
'Pension funds shouldn't be pushed into private equity sector'Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
-
Greg Abel: Warren Buffett’s heir takes the throneGreg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
-
Who will be the next Warren Buffett?Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
