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VCT Investment Strategy and Performance

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
Boots
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VCT Investment Strategy and Performance

#442951

Postby Boots » September 17th, 2021, 11:23 am

I've been investing in VCTs for about 12 years (although a bit on and off in the middle part of that period).

I have a reasonable grasp (for a non-accountant) of the performance I have experienced, and have built up over the years a personal view on what they are good for, and what they are not.

There are a couple of areas I'm not clear on and am hoping the members of this forum might be able to help. I have been looking back at old threads quite carefully but can't seem to find the answers.

Firstly, it has been stated several times (for example here --> https://www.lemonfool.co.uk/viewtopic.php?p=205058#p205058) that one should sell after five years and invest in another VCT (not the same one within 6 months) to attract a fresh tax rebate. Is it not, perhaps, more nuanced than that? I can understand selling an underachieving VCT (indeed I dispatched Foresight Enterprise for that reason), but what about one that is performing OK, let alone above average?

Isn't there a tendency for these investments to perform poorly for the first few years (typically eating through the tax rebate performance boost), but sometimes perking up again later on? Don't they call this the "J curve" or "Hockey stick"? By selling after 5 years irregardless, one would miss out on this. I can see that if an investor is cash constrained or restricted by VCT exposure allocation within the larger portfolio, then selling and buying another, might be the only option to buy a new offer that is of particular interest. But just doing it because the 5 year period is up, might result in a worse performance even after the tax rebate.

My second question is to help with identifying VCTs which are performing below average - I only know my own average - is there any sort of a VCT Index? I haven't come across anything yet.

Thanks in anticipation.

Karellan
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Re: VCT Investment Strategy and Performance

#443131

Postby Karellan » September 17th, 2021, 7:35 pm

I have heard it said , sell after 5 years. It suppose that it makes logical sense as it would maximise profit but I never have. I have holdings
bought in 2004 still. If you were to sell it would take more admin time and the overall holding would be smaller. The collection of holdings that I have behaves like a lively annuity and it just pays me an income that is tax invisible.

In the early days VCTs were often newly constructed portfolios and did indeed often behave badly (like CIG) but ones where an established portfolio is simply added to seem much better to me producing instant income.

Your second question is difficult as I think it must be pretty hard to determine a VCT index , there are several styles of investment (early stage , MBO...). When I got into VCTs I spent ages on the Bestinvest site that I thought had the best VCT stats and came to conclusions as best I could and one of the three was right then ! It was the time then that there were some real shockers. I feel its like any speculative investment in that tomorrow is a new day and it can change. I keep stats on my holdings but as I have bought tranches of the same VCT over many years each tranch is different , often by quite a bit. Then there are amalgamations , cash returns etc so most of my estimation is done by eyeball and do I like it or not.

I have got rid of most of my Foresight as we had such dreadful times with F2 (F3 & F4) etc and I lost confidence in their abilities. I hold some Downing (1 & 4) which which seem thin and some Elderstreet (Draper esprit) which seem thin too (It can change). I shall probably just hang on as they have diversity value and I probably will not go for more. Generally I have made purchases follow my successes . I hold a lot of Baronsmead which only now is possibly going to become more mediocre but they owe me nothing as they have paid me back more than they cost. Mobeus and Northern good steady performers over the years but Baronsmead and Mobeus have new owners and tomorrow is a new day.

barchid
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Re: VCT Investment Strategy and Performance

#443260

Postby barchid » September 18th, 2021, 10:57 am

Karellan
I understand exactly where you are coming from but if you sell a 5 year old vct at a discount on a buy back & reinvest into another similar vct straight away you have potentially locked in 20% extra share in value if your discount is reasonable & a 1 or 2% premium to nav on the way back in providing you also reinvest the additional tax saving.
I held Maven 1 from issue but now almost every year I switch simultaneously between MIG1 & MIG3 as they have similar portfolios.BSC & BSV offer a similar switching opportunity as do Albion vct's these days.There are others too which you could "pair"
I hold 2 AIM vct's, AMAT & HHV but I do not switch between them as they have rather different strategies.
I do believe that if one is cautious there is value to be had here in switching after 5 years or so.

Spet0789
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Re: VCT Investment Strategy and Performance

#443271

Postby Spet0789 » September 18th, 2021, 11:26 am

Assuming you are happy with the VCTs you hold, surely the ideal thing to do is simply buy, hold for 5 years and then (as close to simultaneously as possible) sell that VCT and subscribe to the same amount of new shares in the same VCT?

That way assuming you have tax capacity you get an boost of 30% minus discount minus costs. Call it 15% or so. Not life changing but not bad as a tailwind. Makes the VCT fee-free over 5 years!

To some extent it depends whether your constraint is cash flow or total VCT capacity. Given the generous £200k limit and the fact that holding more than 10% in VCTs is probably excessive, you have to be worth more than £10m not to max out your available VCT capacity in 5 years.

Boots
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Re: VCT Investment Strategy and Performance

#443855

Postby Boots » September 20th, 2021, 2:45 pm

Many thanks to you all for your thoughts on the subject.

Clearly this a subject where participants hold differing views - sometimes even within a single portfolio.

I'm still pondering on the issue.

sinterklaas
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Re: VCT Investment Strategy and Performance

#444181

Postby sinterklaas » September 21st, 2021, 4:33 pm

My two penn’orth…

- sell & reinvest – totally up to you. You net about 18-24% boost from the tax relief minus the discount (market / buyback) plus the offer costs (initial charge). But you might miss out on NAV growth or a special dividend. Weigh up the risk-reward for each VCT. If you've been invested in it 5 years, and have been paying attention, you probably have an inkling whether it's the kind of animal that could reward a prolonged hold, or whether it'll just give you another 3p or 5p or whatever.

- average performance? – Never mind average. Make up your own mind what you want from a VCT. For example, averages at the moment may be distorted by the red hot year enjoyed by AIM VCTs. Do you want an AIM VCT? – with its (typically) lower charges, higher volatility, wider diversification, closer correlation to markets? Do you want a steady and unremarkable dividend payer? Most importantly what do you want exposure to for the next 5+ years? Lots of biotech? Fintech? Consumer brands? B2B software? Get a view on what's coming, not what’s been and gone.

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Re: VCT Investment Strategy and Performance

#444801

Postby RiskyPete » September 23rd, 2021, 5:57 pm

Are there any rules on selling and buying back into the same VCT?

RiskyPete
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Re: VCT Investment Strategy and Performance

#444804

Postby RiskyPete » September 23rd, 2021, 6:09 pm

Sorry I just read the bit above where it talked about not buying back in for six months. Does this just refer to the same VCT though or can you buy into another one without penalty?

And how 'different' would they need to be - if you had an AIM VCT fund (eg: Octopus) could you buy into an AIM VCT fund from another provider?

Boots
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Re: VCT Investment Strategy and Performance

#444826

Postby Boots » September 23rd, 2021, 7:47 pm

RiskyPete wrote:Sorry I just read the bit above where it talked about not buying back in for six months. Does this just refer to the same VCT though or can you buy into another one without penalty?

And how 'different' would they need to be - if you had an AIM VCT fund (eg: Octopus) could you buy into an AIM VCT fund from another provider?


My understanding (happy to be corrected) is that if you want to sell and buy exactly the same thing you need to wait six months. However if you sell, for example, ABC VCT 2 then you can immediately buy ABC VCT 3.

In your example, selling one AIM VCT and immediately buying an AIM VCT from another company - no problem.

RiskyPete
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Re: VCT Investment Strategy and Performance

#444857

Postby RiskyPete » September 23rd, 2021, 9:50 pm

That makes sense, thanks!

Gostevie
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Re: VCT Investment Strategy and Performance

#444879

Postby Gostevie » September 23rd, 2021, 10:59 pm

Boots wrote:
RiskyPete wrote:Sorry I just read the bit above where it talked about not buying back in for six months. Does this just refer to the same VCT though or can you buy into another one without penalty?

And how 'different' would they need to be - if you had an AIM VCT fund (eg: Octopus) could you buy into an AIM VCT fund from another provider?


My understanding (happy to be corrected) is that if you want to sell and buy exactly the same thing you need to wait six months. However if you sell, for example, ABC VCT 2 then you can immediately buy ABC VCT 3.

In your example, selling one AIM VCT and immediately buying an AIM VCT from another company - no problem.


This is correct. Obviously rules might change in the future.

CrackAddick
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Re: VCT Investment Strategy and Performance

#445032

Postby CrackAddick » September 24th, 2021, 1:31 pm

Boots wrote:
RiskyPete wrote:Sorry I just read the bit above where it talked about not buying back in for six months. Does this just refer to the same VCT though or can you buy into another one without penalty?

And how 'different' would they need to be - if you had an AIM VCT fund (eg: Octopus) could you buy into an AIM VCT fund from another provider?


My understanding (happy to be corrected) is that if you want to sell and buy exactly the same thing you need to wait six months. However if you sell, for example, ABC VCT 2 then you can immediately buy ABC VCT 3.

In your example, selling one AIM VCT and immediately buying an AIM VCT from another company - no problem.


Exactly, the definition of "VCT company", wasn't necessarily what many assumed it meant.

Previously there were more situations where VCT houses (Amati/Hargreave Hale/Maven/Octopus/New Century etc.) had multiple AIM VCT offerings. So you could for example sell Amati 1 and then immediately buy Amati 2. Then (if so inclined) 6+ months down the line when another Amati offer came around, you could do things in reverse (assuming you had enough shares past the minimum holding period).

As there was usually a good overlap of positions between the two funds, the risk was reduced somewhat. Unfortunately in more recent times, a number of those AIM funds have merged, so it's not as straight forward as before.


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