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Hargreaves: 3 Top VCT Picks

Demand for VCTs is being driven in part by income-hungry investors seeking attractive dividends, restrictions on pension contributions and the headline tax relief

Hargreaves Lansdown 15 December, 2016 | 11:53AM

This article is part of Morningstar's Guide to Alternative Investing. Here, as part of the Perspectives series, Richard Troue, head of investment analysis for Hargreaves Lansdown, gives his three VCT picks.

Investors have shown strong demand for VCTs so far this year. The ProVen offer has already raised £15 million, out of a possible £40 million, which is significantly ahead of where I would normally expect it to be considering the end of the tax year is some months away.

Demand is being driven in part by income-hungry investors seeking attractive dividends, restrictions on pension contributions which are causing high-earners to seek other tax efficient ways to invest, and of course the headline tax relief.

On the other side of the coin, supply is restricted and there are less high-quality VCT offers available this year than in previous years. This is partly because some well-established VCT managers have enough cash following successful fund raisings in previous years, and as the result of selling investments made over the past few years for healthy profits. There were also some change to the VCT rules last year and some managers are holding back on fundraising why the assess and adapt to the changes.

I typically try to avoid suggesting investors act quickly, as investment decisions should not be taken lightly. However, with high demand and reduced supply I do expect VCTs managed by established teams and with good track records to sell out quickly this year. For investors comfortable with the risks associated with VCT and who think an investment might be suitable for their circumstance this tax year, I would not risk leaving it to the last minute.

ProVen Growth & Income VCT

The ProVen team looks for businesses able to cross the chasm between start-up and becoming established. Target companies usually have a product or service with some evidence of success and the potential to grow rapidly. I like this approach – the team invests in exactly the types of business VCTs are designed to help. Early dividends are a possibility as a number of long-standing investments were recently sold for a profit. Investments in early-stage companies and a tilt towards digital media differentiates this VCT from some peers, although it is slightly higher risk. For investors comfortable with the risks I believe this would make an excellent addition to a VCT portfolio. It is reasonably diverse, with investments in over 40 companies, and the aim is to pay an attractive dividend of 5% of NAV each year.

Albion VCT

Once again Albion is offering investors the chance to invest in all six of their VCTs. Diversification and regular dividends are the main attractions of this offer and it could appeal to first-time VCT investors and those seeking regular income. An investment across all six VCTs provides exposure to around 65 businesses and has the potential to provide monthly dividends.

The team running the VCTs is experienced and well-resourced. We like their hands-on approach as the types of companies VCTs invest in often need nurturing and guidance to reach their full potential. A mix of investments across a range of sectors and in companies at different stages of their development makes this a truly generalist VCT offer and we believe it could form the core of a well-diversified portfolio for almost any VCT investor.

Splitting an investment across all six could be sensible, but investors looking to do so should act quickly as some could reach capacity before others. It is intended that investors who invest an equal amount across the six VCTs will receive a target dividend yield of around 5.7 per cent per year.

Maven Income & Growth VCT 6

Experience and resources matter when it comes to finding, nurturing, and selling small unquoted businesses; and Maven has both. The team has made good progress turning the performance of this VCT around since taking over management in February 2005 and the current portfolio offers exposure to around 40 businesses. There is a combination of mature and established companies and more recent growth-focused investments in younger companies.

Since April 2016, for example, investments have included The GP Service, a provider of a web-based platform for delivering online GP consultations and prescriptions; and Rockar, a motor retailer with dealerships based in high-footfall shopping centres for brands such as Hyundai and Jaguar Land Rover. The main aim is to provide a sustainable income stream while maintaining or modestly growing capital over the long term.

 

 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Albion VCT Ord67.50 GBX0.75-
Maven Income & Growth VCT 5 Ord37.00 GBX0.00-
ProVen Growth and Income VCT Ord74.50 GBX0.00-
About Author

Hargreaves Lansdown  Hargreaves Lansdown is a financial services company based in Bristol that sells funds and shares and related products via its website and through the post to retail investors in the United Kingdom.