My VCT performance in the last 12 months- should invest further?

[Artistxman]

Hi all

After discussing the VCT investment here last November- I invested roughly 18 k and would like to know if the performance warrants another drip feed of roughly similar amount into VCT this tax year?

VCT invested: VCT Names
Mobeus The Income &Growth VCT(I&G VCT)
Baronsmead VT
Mobeus Income &Growth VCT(MIG VCT)
Northern Venture Trust (NVT)
Octopus Titan VCT

Total Dividend so far: £1446

Tax relief 0.3
Tax relief amount £5400

Yield to date 8.038722222

Are good ones still left to buy- is it worth building a portfolio of VCT over a 10 year time frame slowly- with the yield, it will look attractive once it reaches around 200 k...

Thank you for any advice.

[BusyBumbleBee]

Well, Artistxman, you ask

Are good ones still left to buy- is it worth building a portfolio of VCT over a 10 year time frame slowly- with the yield, it will look attractive once it reaches around 200 k...

I would look to houses that offer a DRIS e.g. Albion (particularly AAVC) and the Smaller Companies pair. Then you will have a stable which you can sit back and watch them grow if you sign up for the DRIS and within the DRIS you get your shares at worst at NAV or at best at a discount to NAV (e.g. BSV) i.e no charges - and you still can claim tax back on the amount you have 'paid' - in my view a win-win.

AS to buying any more NEW shares - I would hold back until the smoke from the latest changes to VCT rules bed in - you may find that you can buy distressed shares in the market for less than the 70% you are effectively paying out now.

This has happened in the past and I am betting that it will happen in the future as well.

[UncleEbenezer]

BBB, you're taking quite a strong view there. Individual VCTs may hit the rocks, but whether VCTs in general are due a serious (30% or worse) knock on any reasonable timescale is uncertain, and we may or may not have more clarity around April fools day. Not so much use being proved right if you have to wait 50 years for a crash!

No advice for the OP, apart from DYOR - including perhaps browsing this board. Decide on a level of VCT exposure based on your own circumstances, and invest within it.

FWIW, 2018 has been a lean year compared to the gravy-train of the last five years or so. The future could go either way, though I can't see an upside likely to replace the MBO bandwagon.

[BusyBumbleBee]

Hi UncleE - you say

BBB, you're taking quite a strong view there. Individual VCTs may hit the rocks, but whether VCTs in general are due a serious (30% or worse) knock on any reasonable timescale is uncertain, and we may or may not have more clarity around April fools day. Not so much use being proved right if you have to wait 50 years for a crash!

This was posted by me in another place in May 2005

I have been acting as the Cassandra for VCTs for the past few months. This has been the year when many inexperienced managers have launched VCTs on the back of supposed tax advantages and many investors have been lured by the same. A disaster waiting to happen in my view.

However, This VCT is about the only one that I would have invested in as it has a sensible business model. The others of similar type over the years have been enterpise (OK ish), Close Bros VCT (bloody good to me - yielding over 8% consistently on the issue price but of course much more on my actual cost of 38 pence!)

The rest have been pretty poor investments compared to something like UU. or AWG - or indeed any of the other utilities really.

I think I posted on the Venture Capital thread something like 'I am not buying until the distressed sellers come out of the woodwork in three years time, when I can examine the value of the portfolios and buy at less than the 58 pence I would have to pay now'

I posted similarly every so often over the intervening period.

Why am I the Cassandra now? Several reasons

1. The rules have been substantially changed - MBOs are effectively banned as you say along with many other changes
2. Last tax year many houses jumped on the bandwagon and called in a record amount of cash
3. Because they didn't really know what the rules were going to be they held back on investing it.
4. Now they have to invest 80% of monies in a shorter time than previusly allowed

Conclusion - despite what they say there is too much money chasing too few quality opportunities

Manager's are all saying:

1. Returns will be more volatile (and volatile in Stock Market Speak means downward valuations!)
2. Returns will be lumpier and will depend on profitable exits (no high yielding loans)
3. (in their reports) they are sitting on cash and cash equivalents. (costs the shareholder up to 3% p.a. paid to the manager for a non performing asset)

We all know:

a) lemons ripen faster than plums - so NAV will likely fall before it rises
b) investors panic and tend to buy at or near the top and sell at or near the bottom
c) many houses have cut their dividends as the money they are getting at the moment has to cover the new shares as well as the old ones which actually earned that cash

So bearing in mnd the above, the downside of investng in 'new' VCT shares for me is much greater than the upside over the next few years - apart from the DRIS I am using for three holdings. Isn't it good though that we all have differing views - wouldn't be a market otherwise.

[Kidman]

Manager's are all saying:

1. Returns will be more volatile (and volatile in Stock Market Speak means downward valuations!)
2. Returns will be lumpier and will depend on profitable exits (no high yielding loans)
3. (in their reports) they are sitting on cash and cash equivalents. (costs the shareholder up to 3% p.a. paid to the manager for a non performing asset)

An example from David Hall of Yorkshire Fund Managers (manager of BSV and BSC) in FT Adviser dated 06 December 2018:-
Mr Hall said that under the previous VCT rules he would have expected about one in five of the companies that he invested in to lose him money, but under the new rules he would expect this to be closer to one in three.
He added: "It means more volatility of returns, so while there will be more loss makers, those that make money will make more than before."

As it is not a given that the winners will make more money, I suggest that perhaps he should have said "those that make money will need to make more than before." If they don't then we don't just get volatility, we get reduced returns.

[UncleEbenezer]

As it is not a given that the winners will make more money, I suggest that perhaps he should have said "those that make money will need to make more than before." If they don't then we don't just get volatility, we get reduced returns.

That seems entirely likely.

But reduced returns from what? If it's just reduced from the stars of recent years (say, 2013-2017), that could still be a nice return. If it's back to an era when a high proportion of VCTs lost most of their investors' money before getting consolidated into today's managers, that's another story.

I'm watching the language coming from managers in their reports. Particularly those managers who weren't over-reliant on investments that are no longer allowed, and so are at least (presumably) not just spinning in the dark.

[BusyBumbleBee]

An example from David Hall of Yorkshire Fund Managers (manager of BSV and BSC) in FT Adviser dated 06 December 2018:-
Mr Hall said that under the previous VCT rules he would have expected about one in five of the companies that he invested in to lose him money, but under the new rules he would expect this to be closer to one in three.
He added: "It means more volatility of returns, so while there will be more loss makers, those that make money will make more than before."

As it is not a given that the winners will make more money, I suggest that perhaps he should have said "those that make money will need to make more than before." If they don't then we don't just get volatility, we get reduced returns.

Totally agree with your comment but read this bit more carefully:

Mr Hall said that under the previous VCT rules he would have expected about one in five of the companies that he invested in to lose him money, but under the new rules he would expect this to be closer to one in three.

If he's going to lose on one in three - then what percentage is the poor old shareholder going to lose on?

[BusyBumbleBee]

I am not the only one thinking that VCTs have raised too much cash and now is not the time for PIs to invest in VCTs. This is from the annual report of Chrysalis VCT published this morning:

As mentioned last year, the new VCT rules have significantly reduced the pool of potential qualifying investee companies and forced VCTs to invest at a much earlier stage in more high-risk situations. However, at the same time the VCT industry has continued to raise substantial amounts of new funds. The inevitable consequence of increased amounts of cash chasing fewer opportunities has been an increase in their price. So generally VCTs are paying higher prices for more risky investments which makes profitable returns much more difficult.

We continue to review new investment opportunities, particularly those involving entrepreneurs we have previously backed successfully, however we are not willing to overpay and it will take a special set of circumstances for us to complete a new investment. In addition, under the new rules Chrysalis is precluded from re-investing in much of our existing portfolio and the companies which would be able to take VCT money have not needed any additional funds this year. Accordingly no investments were made in the year.

see https://www.investegate.co.uk/chrysalis ... lc%20Alert

[aureliusfool]

Having been an interested watcher from the sidelines for a while (of both this forum and the sector), I have decided to make an investment in VCTs this tax year. I am of course undertaking my own research, but I'm interested as to whether anyone has any views on the share offers opening soon. I believe Proven, Baronsmead and Northern are all launching. Baronsmead's change of manager puts me off, Northern seem to have a good reputation and Proven seem to have had a great year for realisations.

Any views greatly appreciated.

[scotia]

Having been an interested watcher from the sidelines for a while (of both this forum and the sector), I have decided to make an investment in VCTs this tax year. I am of course undertaking my own research, but I'm interested as to whether anyone has any views on the share offers opening soon. I believe Proven, Baronsmead and Northern are all launching. Baronsmead's change of manager puts me off, Northern seem to have a good reputation and Proven seem to have had a great year for realisations.
Any views greatly appreciated.

Baronsmead and Northern Offers have, in the past, filled up very quickly. If this is repeated in the current year, then I would guess that current Northern owners will take up the full amount before non-Northern owners get a look in (14 days after the current owners). And, also in the past, if you waited for the paper application for Baronsmead, then you were too late! However I suspect (or hope?) that matters will be less frantic this year. And you were correct that Proven (particularly PVN) had a bumper realisation this year - so it may also prove attractive. I currently hold all three. I have already made a further investment this financial year in British Smaller Cos. I'll give Baronsmead a miss this year - and I'll probably be selling off some Baronsmead which are beyond their 5-year hold. Northern still remains a possible purchase. Since I reinvested my Proven (PVN) bumper dividend in a DRIS, I'll not be adding more Proven.

[james188]

I hold Baronsmead, ProVen and Northern and will almost certainly invest in all of them this tax year - plus initiating a position in Albion. I gather that all of them will launch in the first couple of days next week. I think that we are into a new regime and the significant investment changes over the last few years are already beginning to bite - look at the much reduced returns in the Mobeus funds last year, for example. They are by no means the only ones.

FWIW, I particularly like the ProVen VCTs, as they are less affected by the rule changes than the houses that relied more heavily on MBOs. That said, a fair amount of value has been stripped out for existing shareholders and I will be interested to see who benefits from the recent sale of Chess Technologies. I also have concerns about the manager change at Baronsmead, but I think they will adapt. Note that they had some bad losses last year on newish investments as well as the good performers. That is a marked change. Northern is fairly conservative and I expect that they will raise the money they are after fairly quickly. Diversification is crucial, in my view, because this investment class is undoubtedly more risky under the current rules..

[Gostevie]

Having previously only bought my VCTs in the secondary market, I am certainly intending to buy into all six Albion funds in this year's round and grab the tax advantages. I believe there are no safer hands to negotiate the regulatory changes than Patrick Reeve and his team.

I would like to do Northern as well but I don't currently hold any of them so, as has been previously suggested, they may be 'sold out' to existing holders before the offer is widened.

Proven is tempting, Baronsmead not this year. If Mobeus and YFM (British Smaller Companies) were fundraising this year I'd also be temped.

Good luck to all!

Gostevie

[james188]

Gostevie; BSC/BSC2 launched a £30 million joint offer (plus further £5 million over-allotment facility) at the end of November 2018. Today is the last day of priority for existing shareholders.

[Gostevie]

Gostevie; BSC/BSC2 launched a £30 million joint offer (plus further £5 million over-allotment facility) at the end of November 2018. Today is the last day of priority for existing shareholders.

Thanks James, I'd missed that.

[BusyBumbleBee]

Having previously only bought my VCTs in the secondary market, I am certainly intending to buy into all six Albion funds in this year's round and grab the tax advantages. I believe there are no safer hands to negotiate the regulatory changes than Patrick Reeve and his team.

How right you are Steve - I should just stick with Albion - you have seen my comments on others. Another one I would consider is AMATI but they always have an offer open. Both Albion and Amati offer a DRIS.

[Artistxman]

Thank you all. I subscribed another 18 k (to compensate for not being able to make my pension contribution to the max annual allowance) in Northern, Octopus titan, Baronsmead and BSC. Time will tell if I this is the right decision....as I see there is risk with all the new rules..

I wish the pension allowance is not tapered and just lower the tax allowance for all...at a lower rate say 20 or 30%..its not fair for people in their 40s as I haven't reached the LTA but will never get there if the tapered system continues...but I guess may be at least in the fortunate position to still invest in other vehicles.

[Artistxman]

Hi all

Wanted to post a clarification as I realised I made a huge error in my calculation of the dividend yield. In fact it wasn't 8%(I included two tax years together). It was a decent 3.5% and not as high as I originally reported. Didn't want to mislead others.

I am actually struggling to calculate the yearly return well as I have topped some of the VCTs and it's getting rather tedious to do this well. I am continuing to top up every year which makes it really difficult to work out the yield from year 1. If anyone has simple website link to see what it looks like for my holding that will be great. Thanks all. Very useful forum for a newbie(ok- 3 year into it!) in the VCT field.

Hi all

After discussing the VCT investment here last November- I invested roughly 18 k and would like to know if the performance warrants another drip feed of roughly similar amount into VCT this tax year?

VCT invested: VCT Names
Mobeus The Income &Growth VCT(I&G VCT)
Baronsmead VT
Mobeus Income &Growth VCT(MIG VCT)
Northern Venture Trust (NVT)
Octopus Titan VCT

Total Dividend so far: £1446

Tax relief 0.3
Tax relief amount £5400

Yield to date 8.038722222

Are good ones still left to buy- is it worth building a portfolio of VCT over a 10 year time frame slowly- with the yield, it will look attractive once it reaches around 200 k...

Thank you for any advice.

[BusyBumbleBee]

Hi all

Wanted to post a clarification as I realised I made a huge error in my calculation of the dividend yield. In fact it wasn't 8%(I included two tax years together). It was a decent 3.5% and not as high as I originally reported. Didn't want to mislead others.

There are a couple of VCTs where you can buy the ORD shares in the second hand market which have fairly safe yields just about 8%.

Let's see who is first to guess their names - regards - BBB

[scotia]

Hi all

I am actually struggling to calculate the yearly return well as I have topped some of the VCTs and it's getting rather tedious to do this well. I am continuing to top up every year which makes it really difficult to work out the yield from year 1. If anyone has simple website link to see what it looks like for my holding that will be great. Thanks all. Very useful forum for a newbie(ok- 3 year into it!) in the VCT field.

Dividend yields for a single VCT can vary dramatically from year to year- a sale of an investment at a large multiple of the original cost can provide a substantial dividend windfall, which may not occur again for many years, so I am not convinced that paying too much attention to a single-VCT, single-year, dividend is important.

I keep a spreadsheet of all of my VCT purchases and dividends. So a single line contains the VCT name, the number of shares, the date of purchase, the Net Cost (less returned tax), the Current Price, the sum of the dividends received (for that number of shares), and a computation of the Total Percentage Return = 100*(Current Price + Dividends Received - Net Cost)/(Net Cost). You could also add a field to compute the average dividend yield for each line. I also keep a spreadsheet which lists the VCT name, the dividend received and the date received. And I keep a running total (for all of the VCTS) of the yearly dividends received.

So what have I learned from this? I have noticed a fall in dividends from VCTs in recent years - probably due to the changed regulations which forced them to restrict their investments to early start-up companies. Looking at portfolios with about 20 VCTs, purchased mainly over the preceding 5 years, the annual dividend yield, expressed as a percentage of the Net Cost of the VCTs is approximately 9% for calendar year 2019, but it was approximately 15% in calendar year 2016.

It is also worthwhile checking the Total Percentage Return (as defined above) to see if the yields are affecting the NAV of the VCTs. If the VCT makes no gain or losses and issues no dividends then this figure should equal approximately 43% (due to the tax return on the purchase). Given the initial costs of a new issue, and the discount of cost to NAV, this figure will start off well below the 43%, but I would hope that it will climb above it within a couple of years.

Looking at my purchases two years ago (late October and early November 2017) my figures are:-
Mobeus 4 VCT: Annual Dividend yield 19%; Total return 49.2%
Income & Growth VCT: Annual Dividend yield 13%; Total return 47.2%
Northern 3 VCT: Annual Dividend yield 6.8%; Total return 35.7%
Baronsmead 2nd Venture Trust: Annual Dividend yield 11%; Total Return 27.3%
This last figure possibly shows why there has been no stampede for Baronsmead shares this year, as there was in the past.

I think the easy money days of the VCTs have probably passed. I am now effectively investing in VCTs only as much as I am selling (at the end of their 5 year hold) - keeping my total at around 10% of my other investments. It provides diversification. I like VCTs with DRIS schemes, especially if the price is discounted.

Note - all of the above figures assume purchasing new issues and receiving the tax return (currently 30%). And I had better apply a warning concerning my figures - I'm not quite as agile mentally as in the past - so some errors may have slipped into my calculations. Anyway, as was always the custom in my younger days - you can blame it on a computer error - clearly no human being could have made such a mistake.

[Artistxman]

Thank you- Exactly the type of list I was trying to create- but much clearly done and explained. But as you say, the past dividend is no predictor of the future...I feel it helps to keep me grounded. I keep one or two losses in my ISA portfolio...so that it teaches me not not be reckless and so wanted to do the same with VCT(as there is no good platform based stats- Wealthclub provides some but lacks a lot of the portfolio analysis)...I will have to do my legwork and find some old dividend information as I failed to keep tag after the first year. It doesn't help some of my VCT purchases were mid way through the tax year and so only benefited from half of the dividends to even use publicly available info.

So looking at your list, it's already clear to see the favourites NVT and Baronsmead are not performing better than Mobeus- Interesting!(I know there is still time factor and one off - will be interesting to see what happens in 5 years time)

Thanks as always.

Hi all


Looking at my purchases two years ago (late October and early November 2017) my figures are:-
Mobeus 4 VCT: Annual Dividend yield 19%; Total return 49.2%
Income & Growth VCT: Annual Dividend yield 13%; Total return 47.2%
Northern 3 VCT: Annual Dividend yield 6.8%; Total return 35.7%
Baronsmead 2nd Venture Trust: Annual Dividend yield 11%; Total Return 27.3%
This last figure possibly shows why there has been no stampede for Baronsmead shares this year, as there was in the past.