UK Economy to Pick Up in 2014

Venture Capital Trust (VCT) managers say the economic outlook for the year ahead is positive - good news for small, unlisted companies

Emma Wall 6 January, 2014 | 5:05PM
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The fortunes of small, unlisted investments are heavily dependent on the UK recovery, as smaller companies rely on domestic revenues, bearing the brunt of economic jitters. 

Venture Capital Trusts invest in just such companies, and just as smaller company and special situation equity funds fare better in a growing economy, so to do VCTs.

Good news then for VCT investors; according to the annual Association of Investment Companies poll of VCT managers, 2014 should see economic growth rise.

In December, the Office for National Statistics revealed that UK GDP had grown faster than expected in the three months from July to September, at a rate of 0.8%. This meant that the annual estimated growth rate rose from 1.5% to 1.9%. While this is considerably more than many economists predicted it still trails the economic growth of the US at more than 4%, and the predicted 7.5% growth for the Chinese economy this year.

The AIC survery found that three-quarters of VCT managers believe GDP growth will improve, helping provide a boost to domestically focused companies. These improvements in the economic backdrop have meant that consumers are spending again - and in turn, as revenue streams pick up, so too are companies increasing their spending. 

Nine in 10 of the VCT managers surveyed said that they expected the companies in their portfolios to be net employers in 2014, and that certain sectors will do better than others. 

Managers are most optimistic about prospects for the technology sector, followed by healthcare. London and the South East are expected to lead the recovery.

Edge Investments Director, Alasdair George said: "Despite the difficulties in the wider economy, the structural opportunities in the creative industries created by digital technology continue to generate their own momentum."  

Downing's Chris Allner said the growth drivers in healthcare, leisure and hospitality will be attractive for investment as people have more free time and start to feel they have more money in their pocket to spend on themselves after years of austerity. 

"Quality and value for money will remain key components to be a successful operator, with consumers wanting more choice and differentiated offerings," he added.

Managers also expect bank lending to small and mid-sized companies to improve this year. Lack of funding has held some companies back, but two-fifths of managers say this will improve.

David Hall, YFM Equity Partners said: “There have been some signs of growing confidence this year from fast growing small businesses leading to increased equity investment. This can be something of a lead indicator to increasing profits from small and medium-sized businesses over the next two to three years.”

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.

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About Author

Emma Wall  is former Senior International Editor for Morningstar