Radical Uncertainty & random success / Guinness AIM EIS

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Mervyn King's book 'Radical Uncertainty' -- gives the amusing tale of the man who won the Spanish lottery having included the number 48 among his choices, under the misapprehension that this was 'Seven times lucky seven'.

In other words, matters can work out badly or well for quite the wrong reasons.

Which brings me to Guinness's AIM EIS funds. I invested in their 2014 offering and, once they sold off in 2107/8 found I was up about 25% plus the tax saving. I thought this decent enough and put £20K into the 2017 offering and £40K into the 2018 offer.

Frankly I've been less happy and was regretting not having gone for VCTs, which I ordinarily use for tax planning, instead. In one of 2 years they put an inordinately large fraction of the investment - a far higher percentage that for any other company - into Maestrano, which has tanked. They also invested heavily in a scatter of small pharma / medical testing companies. This didn't exactly enthuse me: professionally I consult for pharma and diagnostic companies and the attrition rate among the small guys is massive. Many are one trick pony operations: if their lead drug/test fails, they're done for. I'd put the attrition rate >90%

Examples of Guinness's investment in this sector, over the 2 years include: Avacta, C4X discovery, Destiny Pharma, Diaceutics, Diurnal, Evgen, Faron, Fusion Antibodies, Genedrive, Maxcyte, Renalytix, Scancell & Synairgen. Most of these have bumped along, many drifting lower. A few (e.g Faron, with a trial failure) suffered nasty shocks then recovered partially.

Now, suddenly Covid has changed everything, at least for a while, and several are showing remarkable surges -- Avacta, Genedrive and Synairgen in particular. It's a relief to see these making up losses incurred elsewhere, & I don't mean to sound churlish to Guinness if they read this.

But, as with the mathematically-challenged lottery winner, it's hard to believe there was any skill in here. I've never seen a circular saying; 'We're going for a spread of little companies that might get a surge of enthusiasm in a pandemic' or 'These'll be a hedge in a pandemic'. Rather these companies have gone up because of a Black Swan event unrelated to the reasons for the original investment.

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Guinness now taking profit, selling c. 30% of the holdings in Avacta, Genedrive and Synairgen. This locks in Covid based gains that may evaporate as the epidemic peaks, or as the big diagnostic cos collar the testing market. I'd do the same if I held directly. The catch, of course, is that it costs me the tax relief and puts the gains into the ambit of CGT. It's an interesting ride (& Genedrive is continuing to rise swiftly) but I increasingly think that an AIM VCT is a preferable structure...