Type: Venture capital trust
Aim: Income and growth by investing mainly in unquoted companies trading on Aim
Minimum investment: Lump sum £5,000
Closing date: April 5, 2011 for 2010/11 tax year, June 30, 2011 for 2011/12 tax year
Charges: Initial 5.5%, annual 2%, performance fee 20%
Commission: Initial 2.25%, renewal 0.375% for six years
UK smaller companies specialist Unicorn Asset Management is raising up to £15m for this top-up offer for its Aim venture capital trust. This VCT will invest mainly in VCT qualifying companies that are trading on the Alternative investment market. These companies will have, among other things, experienced and well-motivated management, products and services supplying growing markets, and good cash generation to finance development.
Chelsea Financial Services head of investment products Matthew Woodbridge finds the product literature clear and easy to understand. “It gives investors the opportunity to invest an established Aim VCT that after recent merger activity is now the biggest Aim VCT in the market. “ Woodbridge adds that it has assets of over £60m and holdings in over 90 companies. “Since the merger, there has been a tightening in the discount of the trust and a fall in the annual costs which is attractive for new investors,” says.
Woodbridge observes that the VCT is aiming to pay annual dividends of 6p a share. He says this is a high dividend for any VCT but particularly for an Aim VCT that does not have the benefit of receiving interest from loan stock. “However, the manager, Chris Hutchinson, is confident this level can be achieved partly through realisations and partly from dividends paid by companies within the portfolio,” he says.
The VCT has benefitted greatly, according to Woodbridge, from exposure in the non-qualifying part of the portfolio to Unicorn’s range of Oeic funds. “Many advisers will have noticed that the Oeic funds have shown some very strong performance recently,” he says.
Commission of 2.25 per cent initial plus 0.375 per cent renewal commission for 6 years is regarded by Woodbridge as the industry standard.
Turning to the potential drawbacks, Woodbridge says: “This is not a criticism of this particular offer but of Aim VCTs in general. Performance across the sector has been mixed to say the least with some notable disasters, such as Invesco Perpetual and Singer & Friedlander to name but two. This may deter some advisers from recommending Unicorn’s offer.
“Furthermore, in comparison with generalist VCTs that invest in unquoted companies, Aim VCTs do not have the same level of control over their investee companies, as they tend to have just pure equity and no loan stock or other forms of controlling instruments.”
Discussing the main competition, Woodbridge things this will come mainly from other Aim VCTs raising money this tax year such as Amati, Hargreave Hale and Octopus. “Advisers may also consider the former Aim VCT from Baronsmead, recently renamed Baronsmead 5, which is going to follow a more generalist investment strategy but retain a portion of the portfolio in Aim stocks,” he says.
A technical point that Woodbridge believes is worth noting is that there has been a drastic shortage of qualifying investments for VCTs listed on the Aim Index over the past few years. In those circumstances, he feels it would be hard to be bullish about a new Aim VCT launch.
“However, this is a top-up to a VCT run by a small cap team which has demonstrated that it has the ability to find and make money for shareholders from opportunities on the Aim market and recently, from the non-qualifying portion of the portfolio.”
He adds that older VCTs such as this one that raised monies prior to April 5, 2006 have a distinct advantage as they can invest under the old rules which are less restrictive and enable more companies to be eligible for investment. “Any new monies raised under this offer have to be invested subject to the current regulations, but in practice they can be used to cover management costs and fund dividends,” he says.
VCT investments have to be held for a minimum of five years, otherwise the income tax relief of 30 per cent is clawed back by HMRC. “But it is better to think of these as a supplement to an investor’s retirement income and held for the very long term,” says Woodbridge.
Summing up, Woodbridge says: “This offer is potentially very attractive to higher rate taxpayers especially those with an income of £150,000 or more who will be subject to the new 50 per cent rate of income tax and the new restrictions on pension contributions.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good