VCT Blog by Lawrence Gosling, Editor-in-Chief of What Investment Magazine

  • On November 18, 2021
  • By Chris Gosling

The VCT market looks like it is on for a record fund raising year which is tremendous news for the industry and shows the appetite amongst advisers and high net worth clients what the trusts have to offer.

I get to speak to private investors on a regular basis in my role as editor of What Investment magazine and one theme comes up regularly – income.

That will be no surprise to advisers, financial planners and wealth managers as I’m sure you have much the same conversations with your core client base – those investors close to or in retirement who look forward to what they will be spending their savings on.

And I think this is one of the reasons VCTs are proving so popular. Some of the new share issues are coming with a very attractive yield of 5% or more which competes very nicely with a trend we have seen this year in the investment trust market, which is also experiencing a record fund raising year, with new investment trusts offering high yield.

Clearly the other element of VCTs and dividends which is appealing is that they do not count towards the current annual dividend limit individual investors now face – so put more simply VCT dividends are tax free. What’s not to like?

The other noticeable point for me is that VCTs are now over 25 years old and many can point to long-term track records, so analysis has come more into line with the way advisers and their clients can analyse long-term performance in unit trusts and other open-ended funds.

We all know that past performance is no guide to the future but a demonstrably strong and repeatable investment process is a good basis for an investment decision and many VCTs can demonstrate this.

Another area related to VCTs which I don’t think is given enough importance is the avoidance of the ‘star’ fund manager syndrome which again has long been an issue with open-ended funds.

I recently hosted a webinar with the two lead managers of the Baronsmead VCT – Ken Wotton and Bevan Howard where they pointed to the fact they are ‘just’ two of the 42 people with the wider group who feed into the investment decisions.

That is a lot of smart people and is echoed by the likes of Pembroke, Unicorn, Downing and Octopus, all of whom have taken part in Adviser Hour programmes on VCTs.

And the case of Baronsmead raises another interesting point. It was previously managed by Livingbridge and that team was acquired by the much bigger real assets and alternatives group Gresham House Asset Management, which this year also acquired the Mobeus VCTs.

So there is a little bit of consolidation going on in the sector which I think can only be a good thing because it gives some of the smaller VCT groups access to bigger and wider investment resources and so to my mind should be better for shareholders going forward.

I think it can also make the decision making for advisers a little easier which can be good at this time in the investing year.

But ultimately VCTs should and can be judged on their investment performance and now a few years down the line from the Patient Capital funds have moved away from the asset backed investments towards genuine growth businesses and this has already seen companies like Cazoo and Cinch going from being small investments in VCT funds to be household names and stock market stars.

More of more growth companies are choosing to stay private for longer and a trade sale is a more likely exit for most investors than listing on a stock market, so I think for any investor looking for long term growth as well as income VCTs offer a fabulous opportunity.

And that’s even without talking about the tax breaks.

It might seem strange to say it but VCTs are a 25-year overnight success but they offer a fabulous opportunity to professional advisers and investors alike so it deserves to be a record fund raising year.

Lawrence Gosling is the editor-in-chief of What Investment magazine, the UK’s oldest monthly magazine for private investors. He is also the host of GrowthInvest’s Adviser Hour and the editorial director of AIM-listed company Bonhill plc.

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