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Total Shareholder Return

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
BusyBumbleBee
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Total Shareholder Return

#209622

Postby BusyBumbleBee » March 23rd, 2019, 4:38 pm

All VCTs seem to be measuring themselves with Total Shareholder Return which is an "Alternative Performance Measure"

Investopedia (https://www.investopedia.com/terms/t/tsr.asp) defines it as

"Total shareholder return (TSR) is the total return of a stock to an investor, or the capital gain plus dividends. TSR is the internal rate of return (IRR) of all cash flows to an investor during the holding period of an investment. Whichever way it is calculated, TSR means the same thing: the total amount returned to investors."

BUT : the VCTS are publishing a figure made up of the current NAV plus all dividends paid to date. i.e. any capital gain or, more likely, capital loss is not accounted for - giving, in my view, a distorted picture.

Take BSV who have just reported a Total Shareholder Return of 219.0 (comprising dividends of 140.4 plus Net Asset Value at 30 September 2018 : 78.6)

BUT

Their shares cost 100 pence each at launch.
Their current value is 70 pence (bid price) : i.e. a capital loss of 30%
Total Dividends Paid : 140.4

so in my book : the TSR is 110.4 (the dividends minus the 30 pence capital loss).

However they give the figure as 219 pence made up of the same 140.4 pence in dividends to which has been added the current NAV of 78.6. (and remember even that 78.6 is not achievable as the company buys back at a 5% discount to NAV - say 74 pence)

So the TSR seems to be a meaningless indicator to the would be investor but paradoxically it seems to me to be an extremely useful indicator over one year and allows a comparison across various VCTs

As a aside : I bought my original batch of BSV 22 years ago. I could have invested in Prefs (which I did anyway) and got 9% p.a (£198 interest in total) plus a 40% capital gain. The Income Tax saved on VCTs was 20% at that time. I would have been better off in prefs!!! And BSV was/is one of the better VCTs.

barchid
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Re: Total Shareholder Return

#209858

Postby barchid » March 24th, 2019, 6:47 pm

BBB
You make an excellent point here, especially if we take the Stockopedia definition as being correct, which it seems to be.
What perhaps the tsr for vct stocks should be is one which allows for the tax reliefs enjoyed ?
In the BSV example there was a tax advantage upon purchase of new shares and tax free dividends, which make a big difference, potentially, to a taxpayers TSR. Clearly prefs dividends are subject to tax if the holder is liable whereas vct's dividends are tax free, so an instrument such as a vct with tax advantages inbuilt could reasonably show this.
BSV is an interesting vct as it's dris is issued at 95% of nav, as is its sister stock. Are there any other vct's which discount the nav for their dris issuance are you aware ?

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Re: Total Shareholder Return

#209877

Postby naflod » March 24th, 2019, 8:38 pm

Hi barchid
BSV is an interesting vct as it's dris is issued at 95% of nav, as is its sister stock. Are there any other vct's which discount the nav for their dris issuance are you aware ?

There were two others The Income & Growth VCT and Mobeus 4 VCT, but both got suspended after raising large cash piles a year ago. They used the average share price in the previous week, which was a very efficient device for investors.

Both gave the excuse that it would mean retaining too much cash if they weren't physically paying out dividends. I wasn't a happy bunny, both boards knew that the schemes were popular before the raise and entailed retaining cash, so must have have been persuaded by the manager who would get extra fees.

naflod

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Re: Total Shareholder Return

#209923

Postby scotia » March 24th, 2019, 10:43 pm

And I'm another unhappy bunny with the demise of the two Mobeus dris

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Re: Total Shareholder Return

#210718

Postby barchid » March 27th, 2019, 2:01 pm

Naflod & BBB
Many thanks for that information, I have never been involved with Moebus but it certainly sounds a pretty slippery trick that they pulled, for as was said, it was previously a most efficent scheme for the shareholders.


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