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%.
-
Starling Bank to use AI to help you with your money - how will it work?Starling Bank is using AI to show customers how their daily spending is impacting their bank balance, we analyse if the tool is offering anything new and if it can improve your finances.
-
From old clocks to vintage dolls worth thousands – are you sitting on a fortune in your attic?Many of us are guilty of hoarding things in the loft, but, from coins and vintage jewellery to war memorabilia, your attic could hold items worth thousands of pounds. We look at how much they could sell for
-
The costly myth of “sell in May”Opinion May 2025's strong returns for US stocks have once again shown that putting too much weight on seasonal patterns will only make investors poorer, says Max King
-
Vietnam: a high-growth market going cheapOpinion The threat of tariffs has shaken Vietnamese stocks, but long-term prospects remain solid, says Max King
-
Who’s driving Tesla?As Elon Musk steps back from government with his eyes on the stars, investors ask if he’s still behind the wheel at his electric-car maker.
-
Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
-
'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.
