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T&G Aims for top up



Aim: Growth by investing in Aim quoted and unquoted companies and fixed interest investments.

Minimum investment: Lump sum £2,000

Opening/closing date: February 5, 2003/April 5, 2003 for 2002/2003 tax year, April 30, 2003 for 2003/2004 tax year

Charges: Initial 5.5%, annual up to 3.5%

Commission: Initial 2.5%

Tel: 020 7426 3204

The panel: Douglas Croft, Partner, Andrews Gwynne & Associates,
Hugh Rogers, VCT analyst, Bestinvest,
Stuart Smith, Deputy managing director, RJ Hurst & Partners

Investment philosophy 7.6
Past performance 7.3
Company&#39s reputation 6.3
Charges 4.6
Commission 5.6
Product literature 6.6

Teather & Greenwood has issued C shares in its Alternative investment market (Aim) venture capital trust (VCT), which will invest 25 per cent in fixed interest at all times.

Assessing the VCT&#39s market suitability Rogers says: “This is one of a handful of Aim VCTs around this year.” Smith says: “As a C share offer, potential investors do not need to be concerned as to whether the trust will proceed. This must be an advantage in the current market, which is fairly small. The trust is also being realistic in the maximum it is seeking to raise.” Croft says: “Given the much reduced VCT offerings this year, it&#39s good to see that there is still some activity. Aim stocks at least have a price, some supervision and even, hopefully, a little liquidity.”

Identifying the type of investor for whom the VCT could be suitable Smith says: “It will suit those with a significant capital gains tax (CGT) liability rather than gains at present. Big CGT bills are still part of the landscape for those selling businesses in the run-up to retirement. They are also likely to appreciate the tax-free dividends and it is a possibility for higher-rate taxpayers who believe the present market offers investment opportunities.” Croft suggests people who are investing for the long term. Rogers goes for clients looking to defer CGT liabilities via a VCT and those seeking Aim exposure.

Examining the potential marketing opportunities the VCT could provide Croft says: “There are not many capital gains needing shelter these days. I suspect that those looking for long-term accruals will be interested. You can argue that VCTs are a useful alternative form of retirement planning.” Smith says: “As an offer which is guaranteed to proceed, it should be possible to market this trust to any investors who has expressed an interest in VCTS, as well as to those with significant CGT or income tax liabilities.”

Considering the positive aspects of the trust, Rogers mentions that it has an experienced UK smaller companies fund manager in John Sweet. He also points to the strong Aim research team supporting him and value-based investment principles of the trust.
Smith says: “The fact that it is guaranteed to proceed and the track record of John Sweet, particularly when he was at Invesco Perpetual. Teather & Greenwood has a high profile in the smaller companies market, which should ensure a good flow of potential investments for the trust.” Croft says: “The tax structure, especially the ability to distribute capital gains is clearly important. Perhaps the other strengths are the fund managers plus Teather & Greenwood&#39s position in bringing stocks to Aim.”

Appraising the investment strategy of the VCT Smith says: “The stated aim is to manage the trust to maximise tax-free distributions. This makes maximum use of the various tax allowances, which is what most investors are looking for. The fact that 25 per cent of the trust will be held in fixed interest will appeal to more cautious investors.” Rogers says: “The value-based approach should result in a lower-risk portfolio than most VCTs. So far, John Sweet has taken a very conservative approach to committing funds which has benefited investors.” Croft says: “Sweet has been very cautious so far, which is no bad thing in current circumstances and this is intended to be a higher-risk higher reward vehicle.”

Moving onto the drawbacks Rogers says: “The small amount of funds raised to date could result in a lack of diversity.” He adds that other Aim brokers may have reservations about dealing with a division of a competitor. Smith says: “The only significant disadvantage is that the projected annual running costs are relatively high.” Croft says: “Teather & Greenwood&#39s position is not entirely clear and its corporate situation may be of limited impact on this trust. The original launch did not raise large amounts.”

Discussing the company&#39s reputation Smith says: “Teather & Greenwood has a good reputation in the smaller companies market, although generally there is some concern over the financial strength of the company as it has been badly hit in the last three years.” Roger says: “Teather & Greenwood acts as an advisor and broker to Aim. However, its level of fund management has fallen recently due to the sale of its private clients business to Prudential Bache.” Croft reiterates his concerns on the corporate side but he adds: “It does bring a number of Aim stocks to the market and it does have a good reputation on that score. This fund should be able to feed on that to good effect.”

Turning to past performance Rogers says: “Since launch a year ago, the net asset value (NAV) of this VCT has actually improved from 95p to 96.8p. While this is too short a time to draw any conclusions it is certainly encouraging.” Smith says: “So far, the original trust has performed well in a difficult market, although it is still early days. Far more important is the track record of John Sweet, which was excellent when he was managing smaller companies money at Invesco Perpetual.”

Highlighting the main competitors for the VCT Croft says: “I like the Northern and Close Brothers VCTs, both of which have a good record.” Smith says: “The main competition is likely to come from two sources. Firstly, other Aim trusts, in particular top-ups to Pennine Aim VCT and Artemis Aim VCT. Secondly, generalist trusts such as Cornerstone and Close Brothers Development VCT.” Rogers goes for Pennine Aim VCT, Artemis Aim VCT and Phoenix VCT.

Assessing the charges, Croft thinks they are reasonable. Rogers says: “The annual charge is capped at 3.5 per cent which is reasonable for a VCT like this.” Smith says: “The initial charge is fairly standard, but the estimated running costs are a little on the high side. I would have also preferred to a see a lower annual management charge charge, with a realistic performance fee built in.”

The panel consider whether the commission is fair. Rogers and Croft think it is standard while Smith says: “The initial commission is competitive but given the high annual running costs, I would have thought there was scope to pay a small renewal fee as well.”

Looking at the product literature Rogers thinks it is very good. Smith says: “It is well laid out and thorough, but it also lacks a certain punchiness.” Croft says: “It is informative, which is the main thing.”

Summing up Smith says: “In view of market conditions and the strength of competition, this trust is likely to struggle to raise funds.”


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