A year in the life of VCTs and Investment Trusts

[127tolmers]

I thought might be interesting to see the performance of VCTs and ITs over the last 12 months ie before valuations became Covid infected to the present day. FTSE is down 12% from 7642 to 6736 and the All Share is down 10% from 4222 to 3804. However these indices exclude dividends (say 3%).

I am a great believer in data, facts and evidence in decision making. The AIC is a useful source of statistics on share price total return.
https://www.theaic.co.uk/aic/find-compa ... &desc=true

So how have VCTs got on over 12 months. N=78

Top: Edge H 221%
10th 19%
25th 8%
median -1%
75th -9%
90th -23%
Last: Downing 2K -51%

It appears that VCTs have done better than the market and that is before upfront tax relief spread over 5 years and dividend tax relief.

Could we as investors done better with ITs? N=415 (and includes VCTs as I cannot find an easy way of stripping them out).

Top: Edge H 221%
10th 34%
25th 16%
median 2%
75th -7%
90th -14%
Last: DP Aircraft -91%

Clearly ITs have performed better than the market and very broadly about 10% better than VCTs. However it could be argued that upfront relief of 30% over 5 years (6% pa), tax free dividends and no CGT would make the two very comparable after tax.

Do others think the same? For completeness we should consider a 5 year cycle. FTSE is up 14% from 5893 to 6736 and the All Share is up 20% from 3174 to 3804. However these indices exclude dividends (say 3%pa x 5 years)).

So how have VCTs got on over 5 years. N=61

Top: Amati AIM 133%
10th 70%
25th 51%
median 29%
75th 6%
90th -31%
Last: Edge I -82%

It appears that VCTs have done better than the market and that is before upfront tax relief spread over 5 years and dividend tax relief.

As for ITs N=347 (and includes VCTs as I cannot find an easy way of stripping them out).

Top: Baker Steel 467%
10th 159%
25th 95%
median 51%
75th 20%
90th -16%
Last: DP Aircraft -90%

Clearly ITs have performed much better than the market and very broadly about 20% better than VCTs and even more on the upside. However it could still be argued that upfront relief of 30% over 5 years, tax free dividends and no CGT would make the two very comparable after tax.

[UncleEbenezer]

Since annual limits on ISA savings were ramped up, all but the very wealthiest can shelter our wealth in ISAs. So the real VCT benefit is reduced to up-front tax relief. Which is still worth having, but not necessarily better than other investments.

Your back-of-envelope calculation kind-of supports conventional wisdom, that VCTs are better for the very rich than for ordinary investors. Rationally I should move more of my net worth from VCTs to the ISA, but I don't seem to.

[127tolmers]

Uncle E, an interesting point on where and what to invest in. The problem is you can't access your ISA without losing the wrapper on the amounts withdrawn.

10 year numbers highlight the performance differences. The 10 year VCT heroes (top 10 share price total return) were not an obvious list.

Mob I&G2 348%
KAY 318%
Amati AIM 274%
Inc& Grwth 245%
Mob I&G 230%
Mav I&G5 208%
Unicorn AIM 192%
Ventus C 155%
Brit Smllr 155%
Northern 2 155%

The 10 year Investment Trust heroes (top 10 share price total return) were more obvious (or are with hindsight!).

Scot Mtge 871%
Biotech Grwth 864%
Allianz Tech 786%
Lindsell Trn 652%
Baill Giff Nipp 611%
Int Bio 569%
Edin Wwide 564%
Wwide Hlthcare 524%
Polar Cap Tech 498%
Harbour Vest PE 483%

Well done to anyone who had a few of these on each list in their portfolios 10 years ago and kept them.

[scotia]

I don't think 10 year statistics make much sense with VCTs. The regulations have changed, and some of the previous top players have subsequently (or consequently?) handed over the reins to newcomer management. So just looking at Northern and Baronsmead which fall into this category, I purchased new issues of Northern 3 and Baronsmead 2nd Venture Trust in October and November 2017 respectively. From my records, the current bid price plus dividends (including the next 2p one on 29/1/21) of Northern 3 amounts to 100.5p compared to the 100p original price. For Baronsmead 2nd Venture Trust it is 93.5p compared to 97.6p.
OK - I know I haven't included the 30% tax discount which I received on the original price, but it does show the poor performance of the underlying investments over the past 3 years. Maybe when the new (earlier stage) investments under the new rules start to mature we may see an improvement, but currently it feels like the tax tail wagging the dog.
I know there are other VCTs which appear to be less affected under the new rules, and some have performed well - e.g. my Amati AIM VCT investments (in spite of significant volatility).
But beware of looking back at 10 year old performance statistics!
(I have checked my figures, but any corrections are most welcome)

[oxmatt]

Just to add my 2p I think all of the above is useful insight but we are potentially stacking the odds against VCTs a little in some of the analysis even if the conclusions are reasonable.

Firstly there are a lot more Investment Trusts than VCTs therefore the Top 10 heroes of VCTs is roughly the top quartile of all VCTS (40) with a 10 yr total return. Whereas the Top 10 of all Investment Trusts is the top 4% (10/261 ITs with a 10 year share price return). I would not be surprised that the top 4% of one list looks a lot better than the top quartile of another. Admittedly the very top performers in the IT list look stellar but if we look at the 25th percentile return for all Investment Trusts it is around 220% so the Top 5 VCTs all fall into that group and the rest of the top 10 would be there or thereabouts as well after the tax benefits.

Secondly all of the Top 10 Investment Trust Heroes over ten years appear to be either Global or Regional (e.g. Asia) or Industry specialist funds. None are UK specific. In fact Mobeus I&G 2 would be 16th if the list was extended and it would be the second ranked UK focused IT (after Blackrock Throgmorton). I'm a bit of an amateur in terms of manipulating the AIC list to filter All UK focused ITs but it appears there are not that many UK equity ITs that would look that superior at least to the Top 5 VCTS (e.g. much hailed Finsbury Growth and Income is c.244% and City of London c.97%). So I think if 10 years ago you wanted to make an investment in UK companies then VCTs would have been a reasonable choice (even ignoring the tax advantages which would make this look much better - especially as you could have recycled and therefore double dipped the upfront tax benefit over 10 years). I think the same holds true over 5 years compared to other UK investments.

More recent performance is definitely disappointing for some VCTS especially for the likes of Northern and Baronsmead where so many (myself included) were clamoring to get allocations not very long ago but I'm relatively content with my overall performance since starting investing in VCTS around 6 years ago, especially when compared to other UK investments. I'm also quietly confident about some of the investments that are more focused towards newer/earlier stage investments and better placed against the new rules. In fact I quite like that hopefully this gives me some exposure to "real" early stage Venture Capital/Growth Capital which is harder to get exposure to as a retail investor. I'm still happy to have about 10% of my total investments in VCTS as part of c.20% total UK exposure especially as I can now recycle VCTS I still like as they come up to the 5 yr anniversary. The thing I like least is the fees - especially performance fees on hurdles that don't match the underlying investments.

Added bonus is I think the VCT board is the most interesting discussion/insightful reading on Lemonfool.

[Spet0789]

Completely agree with the point on perf fees. I hate them. It seems materially impossible to find non-AIM VCTs without perf fees!

[Spet0789]

Uncle E, an interesting point on where and what to invest in. The problem is you can't access your ISA without losing the wrapper on the amounts withdrawn.

10 year numbers highlight the performance differences. The 10 year VCT heroes (top 10 share price total return) were not an obvious list.

Mob I&G2 348%
KAY 318%
Amati AIM 274%
Inc& Grwth 245%
Mob I&G 230%
Mav I&G5 208%
Unicorn AIM 192%
Ventus C 155%
Brit Smllr 155%
Northern 2 155%

The 10 year Investment Trust heroes (top 10 share price total return) were more obvious (or are with hindsight!).

Scot Mtge 871%
Biotech Grwth 864%
Allianz Tech 786%
Lindsell Trn 652%
Baill Giff Nipp 611%
Int Bio 569%
Edin Wwide 564%
Wwide Hlthcare 524%
Polar Cap Tech 498%
Harbour Vest PE 483%

Well done to anyone who had a few of these on each list in their portfolios 10 years ago and kept them.

The fair comparison is surely to investment trusts invested in the UK (or perhaps even more specifically, UK smaller companies)?

I view my VCTs as my UK equity exposure and try to avoid UK stocks elsewhere in my portfolio.