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Aim flood alert as VCT chase stocks

Aim will be flooded with new money in April which could see a valuation bubble as VCT managers all chase the same stocks, warns VCT specialist Noble.

Chief executive Henry Chaplin says that with the VCT tax breaks set to expire at the end of the current tax year and no mention of extending them in the pre-Budget report, a rush of VCT launches is likely in the run-up to April.

Both Chaplin and Keydata head of communications Roddi Vaughan-Thomas warn that VCT managers will struggle to find enough quality stocks on Aim for investment.

VCTs are obliged to invest at least 70 per cent of their cap- ital into qualifying stocks within three years and Chaplin and Vaughan-Thomas say Aim is likely to become overvalued.

Chaplin says: “VCT managers raising too much money in one year will have problems investing it all. Aim is likely to become overpriced because of the money going into it and VCT firms without the flexibility to look at unquoted stocks will be stuck in a narrow field next April.”

Vaughan-Thomas says: “There is a danger that there will be a stampede for products, with investors buying on the tax break alone without considering the underlying investment.”

Chelsea Financial Services managing director Darius McDermott says: “There are a lot of rogue stocks floating on Aim and managers will need a strong degree of expertise to sort the wheat from the chaff.”

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