The Lemon Fool

I am fairly new to VCTs. I have 25-30 K to invest and which VCTs I should go for? I have educated myself by checking Bestinvest and Wealthclub websites and i understand the risks and the Tax incentives etc. I am a bit confused as there are quite a few VCTs on offer.
Which are the best performing VCTs to go for this year?
Many thanks.

How long is a piece of string?

You can find a lot of information here on which VCTs Fools favour, and why. Be sure to check why many Fools have reservations about the sector as a whole just now: they may be paying sky-high prices for new investments. Generally speaking, there's been a lot of shakeout of poor performers, and any of today's mainstream VCTs will have a management team with track record. But the past is no guide to the future, and that's certainly true in VCTs.

You can use the AIC website to compare historic performances and management charges. The latter range from rather high (which reflects the greater burden of managing VCT investments compared to listed companies) to outrageous, particularly where there are performance bonuses with no meaningful hurdle.

Apart from that, the information at BestInvest or Wealthclub (I use the latter) is probably as good as you're going to get. Along with information published by the VCTs themselves.

One decision to make is high dividends and diminishing capital (the majority of VCTs) vs middling dividends and (hopefully) capital growth. Examples of the latter would be Pembroke or Unicorn. Even VCTs in the same family may differ: Northern 1 and 2 pay bigger dividends than Northern 3, but N3's capital value performs correspondingly better.

As always UncleE has written a very considered post concerning VCT's. Like the OP, 8 years ago I faced the 'pension LTA dilemma' and took fixed rate protection. After 8 years of going for it on the VCT front I am starting to get uncomfortable for the reasons UncleE has alluded to.

It would be interesting to hear other posters views on the upcoming raises.

For the OP, wealth club have been excellent throughout.

My personal strategy is to treat VCTs as U.K.-heavy small companies funds:

1) with higher fees (typically around 1-1.5% pa higher)
2) which you can buy at a discount of around 20%
3) which are out of scope for tax and tax reporting (like ISAs).
4) with a minimum holding period of 5 years

In that context I tend to focus more on AIM VCTs which generally have:

1) lower fees, with no performance fee
2) far higher transparency of NAV as the constituents are listed and traded
3) stronger track records (for what that’s worth)

Personally I have invested in Amati, Hargreave Hale, Unicorn and Octopus AIM VCTs.

As with others the trigger for me has been the reduction in pension contribution allowances for higher earners.

I also use Wealthclub and have found them satisfactory, especially for simplifying the process of making initial investments.

Another vote for WealthClub as a source of information.

I think being confused about the range of VCTs is quite a healthy place to be, especially if accompanied by resolutely sitting on one's wallet.

It cannot be over emphasised how these are complex, expensive and risky investments. They really should be seen, in my opinion, as a small addition to an existing investment portfolio.

The tax rebate, and how it fits within your own tax liability for the tax year of the purchase, is key to the attractiveness of any VCT. I own about a dozen VCTs and I don't think I would want a single one of them without the tax rebate to reduce the effect cost. Well, except perhaps the one I ended up buying at the depth of the pandemic dip, by pure chance - that one I would keep.

Good luck with whatever you decide to do.

I was in the same place in 2017/18 and my advice is read through the threads and diversify. I bought a small chunk(minimal investment allowed) in few VCTs in the first year and it's a great learning to do it yourself and learn from it. Slowly building a diversified portfolio provides a income similar to other sources such as ISA, Pension, Property and it has the advantage of no tax on the dividends(for now) and some upfront tax benefit.

I personally don't take the dividend income to spend- but use it to reinvest again. This also helps me to see the return(in cash and has demonstrated that a tax free income from VCT is possible and plan my investment portfolio for retirement). But as said by others, risk is higher and so proportionally lower investment compared to overall investment in other sources is what is recommended! I am still a novice to question that wisdom as I have only seen the positive side of the VCT(may be I was lucky with my choices)!

I will be in the minority, but I continue to pile into generalist VCTs as much as I can each tax year - most recently adding materially to the Albion VCTs today, with Mobeus and quite possibly Northern to follow. Somewhere around 30 % of my total investment portfolio, which any IFA would consider madness. I think that it is essential to hold a fairly broad portfolio of the leading VCTs. Despite the various health warnings and the undoubtedly increased risk profile given numerous rule changes, the fact remains that returns over the last 9/10 years have comfortably trounced many other investment options - and that is before building in the significant tax benefits.

The one trend that concerns me is the increasing AIM IPO exits where the VCTs do not cash out. Recent car crashes are Parsley Box (Mobeus) and Music Magpie (Northern). Even Virgin Wines is finding life tough, although I think that it is a decent company. Not all VCTs are created equal.

another vote for wealth club, which I have been using every year since 2013.

I have also used VCTs as an investment tool to claw back my income tax and to prepare for income when I retire (hopefully in 2022/2023), to supplement SIPP drawdown, ISA and (a small) conventional final salary pension. Over the years, my investment in VCTs have got much larger proportionally.

My VCTs have been Maven and Mobius (in the earlier years), Unicorn, Hargreave Hale and Amati AIM VCTs and this year, also included Octopus Titan. Wherever possible, DRIS - only VCT currently DRIS not available is MIX. Expecting approx 4% dividend, with capital stable - hope this is achievable....

james188 wrote:I will be in the minority, but I continue to pile into generalist VCTs as much as I can each tax year - most recently adding materially to the Albion VCTs today, with Mobeus and quite possibly Northern to follow. Somewhere around 30 % of my total investment portfolio, which any IFA would consider madness. I think that it is essential to hold a fairly broad portfolio of the leading VCTs. Despite the various health warnings and the undoubtedly increased risk profile given numerous rule changes, the fact remains that returns over the last 9/10 years have comfortably trounced many other investment options - and that is before building in the significant tax benefits.

The one trend that concerns me is the increasing AIM IPO exits where the VCTs do not cash out. Recent car crashes are Parsley Box (Mobeus) and Music Magpie (Northern). Even Virgin Wines is finding life tough, although I think that it is a decent company. Not all VCTs are created equal.

I am starting to think along these lines as well...and good to know there are folks out there with 30%...I was targeting 10% when I started and now hoping to achieve 25% in VCT(diversified of course).

Artistxman wrote:

james188 wrote:I will be in the minority, but I continue to pile into generalist VCTs as much as I can each tax year - most recently adding materially to the Albion VCTs today, with Mobeus and quite possibly Northern to follow. Somewhere around 30 % of my total investment portfolio, which any IFA would consider madness. I think that it is essential to hold a fairly broad portfolio of the leading VCTs. Despite the various health warnings and the undoubtedly increased risk profile given numerous rule changes, the fact remains that returns over the last 9/10 years have comfortably trounced many other investment options - and that is before building in the significant tax benefits.

The one trend that concerns me is the increasing AIM IPO exits where the VCTs do not cash out. Recent car crashes are Parsley Box (Mobeus) and Music Magpie (Northern). Even Virgin Wines is finding life tough, although I think that it is a decent company. Not all VCTs are created equal.

I am starting to think along these lines as well...and good to know there are folks out there with 30%...I was targeting 10% when I started and now hoping to achieve 25% in VCT(diversified of course).

I am in this camp too generally not selling many VCTs and just letting the natural repatriation of capital that seems to happen. I dont have to think very much just to follow the successful ones that I hold. I have been investing in them since 2004 and diverted additional funds that way. I have a substantive tax invisible income now. Its possible that it will all go wrong. I have possibly been lucky in investing substantially when many VCTs used the safer MBO route. But they have paid me back in dividends almost all of their cost and I still own them. I did a lot of research in the early days (infor on the Bestinvest site was great then) They did not all do well but I avoided the real dogs. I do a lot of analysis now from my figure but again its tricky as things change all the time. The recent aquisition of some of the good VCTs by big managment groups (Baronsmead , Modeus , Northern) may be a problem. I dont suppose that they bought in for altrustic reasons. Although I have been retired for some time I still but all I can and keep an eye out for the decent VCT players of tomorrow.

I am slightly late to this discussion but I wonder what can be done to encourage the board of Unicorn AIM VCT to take its discount more seriously. I would guess it is currently around 20%. They are soon to have a very large liquidity event with the sale of Interactive Investor but are also raising capital. Anyone subscribing in that raise is going to see most of their tax relief vanish in the bid offer should they wish to sell after five years. The underlying performance has been very good but the lack of any sort of discount control mechanism puts the board at odds with many other trusts discussed above.

williaa68 wrote:I am slightly late to this discussion but I wonder what can be done to encourage the board of Unicorn AIM VCT to take its discount more seriously. I would guess it is currently around 20%. They are soon to have a very large liquidity event with the sale of Interactive Investor but are also raising capital. Anyone subscribing in that raise is going to see most of their tax relief vanish in the bid offer should they wish to sell after five years. The underlying performance has been very good but the lack of any sort of discount control mechanism puts the board at odds with many other trusts discussed above.

The underlying performance is so good it's grown to be my biggest VCT holding, and one of very few with a substantial capital gain. Happy to hold, take the moderate income (a level that would count as high income in most modern contexts), and the special divi due next month.

UncleEbenezer and myself have discussed Unicorn AIM VCT in the past. I'm of the opinion that they should take action to reduce the discount - otherwise a substantial fraction of the 30% tax relief is effectively lost. This is especially true because the dividends are modest, with very modest increases, and this allows the NAV to increase - so increasing the loss on sale due to the large discount. Yes - there is a special dividend due on the 10th of February - but this is a highly unusual event. Checking back, the total share dividend per financial year was :-
2014 6.0p, 2015 6.25p, 2016 6.25p, 2017 6.5p, 2018 6.5p, 2019 6.5p, 2020 6.5p.
For financial year 2021, 3p has already been paid, and on 10/2/22 a final dividend of 3.5p will be paid along with a special dividend of 7p. This is the only special dividend in my records (going back to 2014). And the NAV has increased by approximately one third over the past 5 years (even taking the recent 25% fall into account)
Does the special dividend signal a change of heart? I would like to think that it does, but I doubt it.

scotia wrote:UncleEbenezer and myself have discussed Unicorn AIM VCT in the past. I'm of the opinion that they should take action to reduce the discount

For what it's worth, the AIC lists the current discount as 5.12%. Which is well below the VCT average, and no doubt contributes to the juicy capital gain shown in my portfolio.

UncleEbenezer wrote:

scotia wrote:UncleEbenezer and myself have discussed Unicorn AIM VCT in the past. I'm of the opinion that they should take action to reduce the discount

For what it's worth, the AIC lists the current discount as 5.12%. Which is well below the VCT average, and no doubt contributes to the juicy capital gain shown in my portfolio.

Looking at the data on Hargreaves Lansdown, It appears that there has recently been a steep decline in the estimated NAV, and a more modest decrease in the declared price, which has resulted in a 4.58% discount. However over 12 months the average is stated as 14.58%. In computing the current discount, HL have estimated the current NAV as 204.36, whereas the most recently issued NAV from UAV (at 31/12/21) was 239.16. I'm not sure how accurate such estimates are - presumably they are computed from the AIM prices of the listed shares. However it may be that the market makers are not so agile in amending the price band, especially since the number of transactions is small. So I certainly agree with the "what its worth" statement.

Scotia/Uncle
I know nobody likes a clever clogs but I did post on 26 Oct last that with Unicorn announcing a fund raise in the new year "anyone with these vct's outside the 5 years has their best chance to sell, as currently the discount is 15%ish on last nav, but traditionally by the time their offer opens it is down to single figures. It widens out pretty swiftly as the offer starts to close..."
I fully expect the same to happen this year too, my shares have another 8 months to go then I will be selling those on their next raise as I much prefer to see a decent divi & a discount management policy in my vct's

barchid wrote:Scotia/Uncle
I know nobody likes a clever clogs but I did post on 26 Oct last that with Unicorn announcing a fund raise in the new year "anyone with these vct's outside the 5 years has their best chance to sell, as currently the discount is 15%ish on last nav, but traditionally by the time their offer opens it is down to single figures. It widens out pretty swiftly as the offer starts to close..."
I fully expect the same to happen this year too, my shares have another 8 months to go then I will be selling those on their next raise as I much prefer to see a decent divi & a discount management policy in my vct's

Thanks for jogging my memory - its no longer as efficient as it used to be. Our (myself and wife) end-of-5year VCTs were being transferred from certificates to a Hargreaves Lansdown account - then sold. This HL facility stalled due to the Covid outbreak, but I believe that it has re-started, so we will once again get our 5year plus certificates transferred ( which includes all our UAV) , and I'll watch for the most opportune moment to sell UAV.