The Lemon Fool

Hi all.

I invested 1k in each of the Albion VCTs in 2019.

I've just checked on the computershare site and the current value is as follows:

Albion Development 989
Albion Enterprise 991
Albion Technology 925
Albion Venture Capital 670
Crown Plan 880
Kings Arms Yard 880

Do people generally add in the tax benefit when calculating their return from holding VCTs? Note I haven't added in any dividends as yet.

Also - are these live share prices generally lower than the NAV? And does that ever resolve or you just take the hit when selling, and hope that the tax benefit and dividends combined outweigh the discounted share price.

Thanks

dingdong wrote:Do people generally add in the tax benefit when calculating their return from holding VCTs? Note I haven't added in any dividends as yet.

Also - are these live share prices generally lower than the NAV? And does that ever resolve or you just take the hit when selling, and hope that the tax benefit and dividends combined outweigh the discounted share price.

I suspect there are many different reporting methodologies employed.

Personally, I take the Net purchase cost (after the Tax Rebate) as the basis for reporting performance. I use that and the dividends (plus any trail commission rebate - this may be nil) to work out an annual Yield. I see the Tax Rebate as a reduction to the purchase cost, which I probably could not have achieved in any other way, which is why I take it into account in the reporting.

Then I take the Offered share price price plus the dividend (etc.) and the Net purchase cost to work out a Total Return.

The NAV is often higher than the Offered share price (but sometimes the same, or occasionally even lower). I take the view that it isn't important what NAV is placed on the share, the Offered price is the best guide to a realisable value on any given day.

I also take the view that the Yield is more important than the Total Return up until the point I sell the share (should that ever happen).

Other people will have other approaches.

dingdong wrote:
Do people generally add in the tax benefit when calculating their return from holding VCTs? Note I haven't added in any dividends as yet.

I do similarly to Boots, but I keep a calculated note of the Total Return = (Bid Price - Initial Net Cost + Dividends)/( Initial Net Cost), and only compute the XIRR once I have sold the VCT.
If it were possible to purchase the shares at precisely the Bid Price X, and obtain a 30% tax rebate, then the total return at that point would be 0.3X/0.7X. I.E. a percentage total return of 42.86%. Clearly your total return will start at less than this figure, but when it reaches this figure (if ever), then the VCT is actually now contributing to the total return. This time can be very variable - but I would be disappointed if it were more than 2 years. (and I have been disappointed with some VCTs)

Getting Total Return figures from financial sites will give you some indication as to how your VCT is performing - but the number will be based on purchasing at the Bid price (which will be less than you actually paid) and it will ignore the 30% discount. However the trend will give you an idea on how it is performing.

As to the difference between NAV and Bid prices - in the past the difference could be wide, but now many (but not all) VCTs attempt to keep the Bid price no smaller than 5% to 10% below the NAV price.

For the avoidance of any doubt, my use of Offered share price may have been wrong! I get terminally confused between BId and Offer prices (even after trying to read an explanation).

I mean the price that someone is prepared to pay me for the shares I hold.

Apologies for any confusion caused!

Boots wrote:For the avoidance of any doubt, my use of Offered share price may have been wrong! I get terminally confused between BId and Offer prices (even after trying to read an explanation).

I mean the price that someone is prepared to pay me for the shares I hold.

Apologies for any confusion caused!

Yes the terminology gets me confused as well. I knew what you meant - i.e. the lower price, and I initially prepared my response using the term "Offer" as you had - then I began to wonder, and thought I had better check. Hargreaves Lansdown call the prices Sell and Buy (which is sensible), and London South East use Bid and Ask, and looking up Wiki for a definition I found Bid (the price you sell at) and Offer (the price you buy at). Hence I changed Offer to Bid. So to avoid any confusion to our beginning investor - we both meant the lower price - i.e. the price you sell your shares at.

Thanks both. I hadn't thought about just treating the tax advantage as a discount to the initial purchase price which makes it a lot easier trying to understand the overall return.