VCT countdown

With the clock ticking for this year’s VCT investors, the Association of Investment Companies (AIC) has published some key recommendations covering both generalist and specialist VCTs from some of the country’s leading VCT advisers.

Ben Yearsley, Investment Manager, Hargreaves Lansdown, recommends Electra Kingsway VCT for his generalist VCT recommendation, pointing out that Hargreaves Lansdown were the first investment broker to back Electra when they launched a VCT, and they haven’t been disappointed. For his specialist recommendation, Ben Yearsley likes Foresight 2 C shares, arguing that whilst it’s bound to be a popular choice “you can’t argue with the numbers.”

Foresight 2 C shares is indeed a popular choice - John Davey, VCT Analyst at Bestinvest has also chosen Foresight 2 C shares, along with Close Enterprise. He explains that Foresight 2 C shares will adopt a slightly different approach to its predecessors by allocating a significant proportion of the capital to buy-outs of technology companies and to funding companies involved in environmental and renewable energy projects. On Close Enterprise, John Davey’s other VCT recommendation, he points out that its management have an admirable track record, and a well rehearsed strategy.

For his generalist recommendation, Matthew Woodbridge, Investment Manager, Chelsea Financial Services likes Close Enterprise VCT. He is a fan of Patrick Reeve (Managing Director of Close Ventures) and his team, commenting that they have achieved the “holy grail” of having an active secondary market in the shares of their earlier VCTs. He also believes that “this new issue has a policy of investing in both asset-backed and high growth companies which should provide a good balance for the portfolio and a steady revenue stream.” For his specialist choice he likes Sitka Health Fund.

On his generalist choice, Close Enterprise VCT, Matthew Woodbridge, VCT Manager, Chelsea Financial Services said: “This new issue has a policy of investing in both asset-backed and high growth companies which should provide a good balance for the portfolio and a steady revenue stream from the asset backed companies with the potential for capital dividends from the growth companies. I feel that Patrick Reeve (MD of Close Ventures) and his team have clearly demonstrated by their track record that they have the expertise to deliver what all VCT investors require, a healthy predictable income stream without sacrificing a fall in net asset value. They have also achieved the holy grail of having an active secondary market in the shares of their earlier VCTs.”

On his specialist choice, Sitka Health Fund VCT, Matthew Woodbridge continued: “This is a top-up issue which allows prospective investors instant access to a mature portfolio (£12m in size) which has paid out 7p per share in dividends in recent months following successful exits. The VCT is run by an experienced management team which benefits from deal flow across the whole Noble Group. Although a specialist sector, healthcare benefits from several factors including innovation, public sector spending and demographics. For a VCT investor looking to invest for the longer term (7-10 years) this presents an interesting investment opportunity.”

On Foresight 2 John Davey, VCT Analyst, Bestinvest said: “Foresight 2 C shares will adopt a slightly different approach to its predecessors by allocating a significant proportion of the capital to buy-outs of technology companies and to funding companies involved in environmental and renewable energy projects. We have felt for many years that Foresight was the pre-eminent specialist in this sector but that is no guarantee of investment success. For investors who can accept the high risks inherent in this strategy this VCT represents a sensible option.”

Commenting on Close Enterprise, John Davey continued: “Close have an admirable track record, are an experienced VCT manager with a well rehearsed strategy. The asset backed nature of the portfolio should provide a non-cyclical steady return. Income generation should be achieved through secured loans (often with first charge over the asset). Growth should be achieved through the remainder of the qualifying portfolio comprising of lower risk income producing businesses and higher risk / higher return technology companies.

“Other more novel VCTs include Edge Performance VCT C, which intends to help finance live events such as music festivals, and Triple Point 70 VCT which intends to provide exposure to hedge funds returns while making qualifying investments into businesses with contractually secure revenues.”

Commenting on his generalist recommendation, Electra Kingsway, Ben Yearsley, Investment Manager, Hargreaves Lansdown said: “We were the first investment broker to back Electra when they launched a VCT and to be honest I haven’t been disappointed. Nick Ross leads an experienced team who invest across a spectrum of AIM and unquoted companies. Up to 25% will go into AIM companies. As a minimum Nick Ross looks to invest in companies that have the potential to at least double in 3 to 5 years. Electra are strengthening their team further and also completing a buy out from their parent. Whether you want just one VCT or you invest in a portfolio Electra Kingsway is certainly one to consider.”

Commenting on his specialist recommendation, Ben Yearsley continued: “There is a wide choice of specialist VCTs in many areas so picking one is never easy. I have ended up going for the one most will probably choose – Foresight 2. Foresight still manage the best performing VCT of all time – largely on the back of 2 investments, however you can’t argue with the numbers. This is a technology VCT that will invest across a broad spectrum of technology companies. One particular focus will be green and clean technology – undoubtedly a growing area and one that is topical. Foresight are very well resourced and have proved they can deliver the big winners. If you want a specialist VCT investing in an exciting area, this could well be the one for you.”

The AIC View

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “The tax advantages of VCTs are well known and have been very much in the spotlight. But behind these headlines are some interesting companies with some appealing stories to tell. These include VCTs investing in green energy, nursing homes and other specialist areas, as well as more generalist VCTs for those wanting to spread risk across a variety of sectors. The AIC’s website has a whole host of information on member VCT objectives and investment areas and it’s well worth having a look at some of the wealth of data available.”