2020/21 strategy

[Vulgaris]

To my own utter amazement I'm beginning to think I'll turn enough income this year to need to shelter it from tax.

Given all the uncertainties I reckon that start-ups are hardly riskier than established dinosaurs whose business models are apt to be wrecked in whatever emerges from the present chaos. Some of my best gainers this year have been small pharma / diagnostics cos acquired in the ambit of Guinness Aim EIS 2017 and 2018 funds; some of my biggest losers have been blue chips (Lloyds, oil majors, property). So, I'm inclined to stick with significant VCT/EIS investment. Unlike in the 2007-9 carnage, no VCT catastrophically and none has stopped paying divis (yet).

Several VCTs have indicated that they'll raise this year --- Baronsmead, Hargreaves Hales Octopus AIM Titan and Apollo. Others will doubtless follow. Has anyone yet formulated views on which are best placed going forwards into a world that looks likely to be radically reshaped by more home-working and an accelerated death of the big office as well as of the high street?

[BusyBumbleBee]

I have some sympathy with your thinking, Vulgaris, but I can't help feeling that we haven't seen the full impact on existing VCT portfolio companies - nor am I confident that we are out of the Covid-19 woods yet. But time is on your side as you do not have to make a final decision until the end of March by which time the whole muddied waters may be clearer.

[barchid]

BBB
You are correct I believe, in desribing the waters as "muddied", a prime example is BSC2 who announced their figures today.
NAV did not look great, but over covid period, some disposals so paying another divi, they now have by far the greater part of portfolio in tech, I guess because their retail businesses have been marked down in the books and tech marked up.
Only appear to have 3 hospitality co's now so I Iook on that as an improvement & what a good job they sold "go outdoors" when they did.
Nav reduction must have been lower than expected as shares were marked up today by 1.8p or 4%, but having read the results twice I still come to no real conclusion so I would not reinvest in them if there is an offer this year.
HHV have under performed Amati since covid and as a holder of both I guess I might put some more in there, but Giles Hargreave has now gone almost completely & I am not sure Cannacord are the best people to run a vct. Fees have increased since they took it on.
Northern now run by Mercia, a very different type of company, so yes, looking at that small collection of erstwhile popular VCT's the game has changed rather sharply.
When in doubt stay out ?

[BusyBumbleBee]

BBB
You are correct I believe, in desribing the waters as "muddied", a prime example is BSC2 who announced their figures today.
NAV did not look great,

Their later correction to the report is somewhat startling - surely anyone can look on a calendar and see that 21st is a Friday

The following amendment has been made to the 'Half-year Report to 30 June 2020' announcement released on 12 August 2020 at 10:15 under RNS No 8426V.

In respect of the interim dividend of 1.5 pence per ordinary share to be paid on 21 September 2020 references to the record date (the dividend will be paid to shareholders on the register at the record date) of "20 August 2020" have been changed to "21 August 2020" and reference to the ex-dividend date of "19 August 2020" has been changed to "20 August 2020"

Sloppy - what else is sloppy?

[barchid]

BBB
I can do nothing but agree with you, sloppy !

[Spet0789]

My preference this year will be for AIM VCTs as I consider them to be more diversified (especially as they have more scope to invest in companies with international exposure). Amati, Unicorn, HH and perhaps Octopus AIM I'd expect.

[barchid]

Spet
In principle I think that is pretty sound, I do hold Unicorn, HHV & AMAT, and the latter 2 funds have active buy back programmes so normally you can exit on a single figure discount.
Unicorn do not (until they have a new offer, in my experience) and looking at the last NAV of 160 & todays bid price of 127 is a discount of just over 20%, possibly a point worth bearing in mind ?

[BusyBumbleBee]

BBB
I can do nothing but agree with you, sloppy !

when I said

Sloppy - what else is sloppy?

I really meant are their NAV figures built on sloppy research as well?

[Spet0789]

Spet
In principle I think that is pretty sound, I do hold Unicorn, HHV & AMAT, and the latter 2 funds have active buy back programmes so normally you can exit on a single figure discount.
Unicorn do not (until they have a new offer, in my experience) and looking at the last NAV of 160 & todays bid price of 127 is a discount of just over 20%, possibly a point worth bearing in mind ?

Agree on Unicorn... not a big fan of their discount policy but in the long run (5-10yrs) I don't think it makes a huge difference.

[barchid]

Spet
Agreed, unless you recycle the funds every 5 years or so as many of us do ?

[barchid]

BBB
Yes very good, I had not realised I'd let that goal open !!
Of course I am always slightly cynical on valuations, but tbf, they seem to have marked down leisure/hospitality a fair bit without going mad in the other direction on tech vals.
One thing that is not sloppy is their cost calcs....

[Vulgaris]

Certainly the AIM trusts --- particularly Amati, least so Unicorn --- have had the clearest bounceback from the March lows - though this may just be because valuations are more transparent. I haven't trawled through their holdings to take a view on the extent to which they have small pharma & diagnostic start ups, some of which which have prospered though Covid. These are certainly what has done well in the Guinness AIM EIS 2008 fund, which I also hold, though one can hardly suppose that the manager guessed that Covid-19 would come along to provide a bonanza for the likes of Synairgen, Genedrive and Avacta. And, needless to say such test and treatment manufacturers are vulnerable if a vaccine comes next year.

[Spet0789]

Amati 2020/2021 offer open.

I’m pleased with Amati and will be subscribing.

[Spet0789]

Spet
Agreed, unless you recycle the funds every 5 years or so as many of us do ?

Entirely depends on my earnings in 2025! If I’m still working then I will be subscribing from income. Otherwise I may well be recycling as you do.

[xeny]

Entirely depends on my earnings in 2025! If I’m still working then I will be subscribing from income. Otherwise I may well be recycling as you do.

Presuming you've some income to be paying income tax on, isn't recycling 5+ year old VCT investments essentially a no-brainer?

[james188]

I completely understand why people recycle after 5 years, but my personal perspective is that VCT shares are one of the best tax free investments and - in principle - the more that I can accumulate, the better. I would hate to sell unless I had to do so.

So, even if I was in the position where I did not have sufficient income to make it worth participating in new top-ups, I would still be inclined to add each year in the second hand market, up to the annual allowance (£200,000). I have never sold a single VCT share and I have bought significantly every year since 2013, when I started investing in VCTs (much later than some of the top posters on this board). The rules have tightened and so the risk profile has increased, but the top generalists have continued to deliver excellent returns. Even this year, when dividends have been slashed across the board, VCTs have generally still delivered very decent returns.

People are very understandably nervous at the moment, but just look at the likes of Mobeus, who have only today announced a fantastic realisation for Access IS.Very impressive and by no means a one-off. Accordingly, I will continue to add.

[Spet0789]

Entirely depends on my earnings in 2025! If I’m still working then I will be subscribing from income. Otherwise I may well be recycling as you do.

Presuming you've some income to be paying income tax on, isn't recycling 5+ year old VCT investments essentially a no-brainer?

Not at all. The no-brainer is to invest £200k from my income and leave the old VCTs as they are, paying me tax free divis.