Large VCT transactions capturing dividends

[Kidman]

Some months ago, there were questions asked as to the reason(s) for large transactions around the time of some VCTs going ex-dividend.

As a holder of British and American Investment Trust (BAF), I have been reading their latest annual report which has a full explanation and report as to their activities in this field including the procedure and associated protocols (pages 49-50).

In essence, the procedure is designed to generate distributable reserves by effectively turning capital into income. BAF buys shares cum-dividend and then sells ex-dividend hoping that the net effect will be broadly neutral but they receive the dividend which then forms part of their distributable reserves.

The report includes a list of actual deals during the year ended 31 Dec 2016 which included four VCTs out of the total of ten deals:-
Income and Growth VCT (Jan 2016), Oxford Technology 4 VCT (Jan/Feb 2016), Foresight VCT (March 2016) and Octopus Eclipse VCT (Nov/Dec 2016).

[oxmatt]

Interesting - I presume the relatively wide spreads are acceptable as there is very little risk of market movement during the period if there is no expectation of a NAV update.

[BusyBumbleBee]

I have been reading their latest annual report which has a full explanation and report as to their activities in this field including the procedure and associated protocols (pages 49-50)

Don't suppose you could post the link to the report - should make interesting reading. I wonder if these VCT deals are shown on the stock exchange - or are they 'borrowed'

[Kidman]

Don't suppose you could post the link to the report - should make interesting reading. I wonder if these VCT deals are shown on the stock exchange - or are they 'borrowed'

The BAF website is http://www.baitgroup.co.uk/ but the report there doesn't seem to be as comprehensive as my printed report. There is enough to give you the flavour of a fairly quirky investment trust but perhaps not to answer the question.
I believe that the deals are all 'on market' (maybe code 'OK') and may involve some delayed delivery of stock by agreement with the broker or perhaps buy at T+10 and sell at T+2?

They do take risk of price movement and not all the deals involve VCTs. Last year there was an overall net loss whereas in the previous year there was an overall net gain, from memory.

[UncleEbenezer]

I see what looks like the report in question at investegate.

Couple of relevant quotes, among which this looks like the crux of it:

During the year the company entered into a number of investment transactions with Geminion Investments Limited, a company in which Mr J C Woolf has an interest and is a director. The purpose of these transactions, which were all conducted through a London Stock Exchange broker, was for the company to purchase cum dividend stocks and sell these stocks ex dividend so as to capture the associated dividends as disclosed in Note 2 of the financial statements to generate distributable reserves to achieve the company’s objective to sustain a progressive dividend policy. The aggregate value of these transactions were purchases of £20,788,000 (31 December 2015 – £19,923,000), dividends received of £1,484,000 (31 December 2015 – £1,586,000) and sales of £19,017,000 (31 December 2015 – £18,791,000) giving a net loss of £287,000 (31 December 2015 – £454,000 gain).

Actually, now I quote it, that's annoyingly uninformative, in that it doesn't answer any of the questions I'd ask on reading your post. And your mention of particular VCTs implies you must have something that's not there.

[flyer61]

One wonders what advantage Mr J C Woolf gained....

[Kidman]

One wonders what advantage Mr J C Woolf gained....

Mr Woolf is seen to run an investment trust which increases its dividends each year and maintains its status as an AIC 'dividend hero'. Such a 'hero' has a 20-year record of increasing dividends. If they don't have enough distributable reserves then they may have to lower their dividend one year and lose this status.

Re UncleE's point about the online annual report, it may be missing the best part of one and a half pages. The detail in the notes to the accounts which relate to the cum-div/ex-div transactions starts mid-way down page 49 of the hard-copy report. There is a table of the ten transactions in the recent financial year and the totals as in UncleE's quote. The next page covers the protocols to generate distributable reserves such as how it works, board and shareholder approval and record keeping.