Totally New To VCTs

[will89]

Hi,

I've never made a VCT investment before, but due to ISA limits and pension contributions I may well look to.

As I'm sure any investment class appears to a complete newcomer, I'm a bit bemused about getting an 'idiot's guide' to VCTs.

I understand the risk, the tax rationale, the fees etc, but how do I actually invest? Something like Wealthclub or another provider? Are there some offerings that are commonly accepted as 'good' and some as 'poor'?

It seems that as it's more niche than just 'stick it in a tracker', the level of discussion and guidance is somewhat limited. Is it literally a case of registering with a provider, reading some prospectuses and picking?

[scotia]

Firstly you need to find which VCT issues are available. Usually they will be listed on the financial sites like Hargreaves Lansdown or Wealthclub or Bestinvest etc. Usually you can buy VCTs through these sites at a discount, although sometimes you can buy them directly at a similar price. You need to keep a keen lookout on these sites, since some offers are greatly sought after - and can be filled very quickly. As to which ones are the most favoured - well the adage that past performance is no guide to future performance springs to mind - particularly since the VCT regulations on what VCTs are allowed to invest in have changed substantially over the past few years, and this makes the guessing game even more tricky. You will find that VCTs tend to fall into two main categories - Generalist and Aim. There are also Limited Life and Specialist VCTs, but these are less common. Both the Northern and Baronsmead stables of Generalist VCTs usually sell out very quickly, however there has been a recent change in the management of Baronsmead. Amati and Hargreave Hale are popular AIM VCTs. Titan is one of the largest VCT providers - with a wide range of products. I personally hold VCTS from 9 different providers, and its interesting how their performances have waxed and waned in different fashions over the past 14 years. If you look through past posts on this site, you will find lots of useful information on other persons experiences.

[Alaric]

Usually they will be listed on the financial sites like Hargreaves Lansdown or Wealthclub or Bestinvest etc.

Which other "mainstream" platforms offer VCTs?

An initial step would be to open an account with a platform that offers VCTs. Actually even reading the material on the Hargreaves site has left me a little better informed about how VCTs work. That was just a search for "Hargreaves Lansdown VCT".

If what I gleaned from the Hargreaves site is correct, key points are that you buy at IPO, reclaim tax against the purchase, have to hold for five years to maintain the tax advantages and may only be able to sell back to the promoter. Not to mention that some VCTs schemes will take your money, spend it and have nothing to show for the "investment".

[sinterklaas]

You need to keep a keen lookout on these sites, since some offers are greatly sought after - and can be filled very quickly.

Because Wealth Club only does tax-efficient investments I find they keep investors well informed about VCTs coming and going. With HL and Bestinvest offering allround fund/share platforms, VCTs are more of a sideline for them, so yes you need to be alert. This forum is of course another good way to stay informed : )

If what I gleaned from the Hargreaves site is correct, key points are that you buy at IPO, reclaim tax against the purchase, have to hold for five years to maintain the tax advantages and may only be able to sell back to the promoter. Not to mention that some VCTs schemes will take your money, spend it and have nothing to show for the "investment".

I wouldnt use the term 'IPO', because unlike companies that debut on the stock exchange (where institutions snap up the IPO shares, then private investors can buy them once they are traded on the exchange), most VCTs* will launch a new share offer every year / every couple of years, which gives a fairly regular opportunity to subscribe directly. Last year there were circa 20 offers around January time. New offers are the main way VCTs get a capital infusion and, as Alaric says, new shares are the ones you get tax relief on, subject to holding them for 5 years. Yes, there is a secondary market for VCT shares but there are few sellers and buyers, for obvious reasons (no tax relief) so this tends to be at a substantial discount to NAV, and you will have to use a phone based stockbroker to get a price / quantity.

As Alaric says the main way to divest is through buybacks which are not guaranteed. But if you like tax free dividends and believe the VCT will continue to pay them, maybe you won't need or want to. Therefore do think of VCTs as a long hold.

Back to OP question – which ones are good… I second Scotia here, you have to look around and form your own view, and it should be forward looking… but FWIW I like ProVen, Titan and Albion for all different reasons. I don't favour the AIM ones and have an irrational aversion to Foresight, even though past performance has made me think twice at times.

* that is, apart from planned exit VCTs or ones like Artemis that are being managed down