As we are now firmly in silly season for news, I thought it best to focus on what is coming up this year for this month’s article. Last year many of the popular venture capital trusts sold out extremely quickly, and the conditions appear similar this time, so I expect the pattern to be repeated.
Consistent dividends are one of the main reasons that the best-quality VCTs sell out. What is not to like about a 5 per cent per year plus tax free yield? A diverse, well-established VCT portfolio can produce the light thud of dividend cheques on the doormat each month. Rather nice, especially when reliable income is hard to find.
Northern Venture Trust, for example has recently paid a 3p per share dividend, expects another 3p per share in December and will pay a 9p per share special dividend in September – all tax free from a net asset value of about 90p.
Many have derided VCTs over the years pointing to stagnant or falling capital values. Yet 15 pence in dividends this year alone, plus the tax breaks at outset, surely cannot be ignored. Top-quality VCTs such as this are excellent in my view, and can help diversify a portfolio too.
Looking at this tax year, many VCT managers appear to be planning ahead, unusually looking at launching in the summer. I do not think many expect money to come in during July and August (especially if this fine weather continues) but they want to be ready in the autumn for when business picks up.
Five VCT offers to look out for
1. Northern VCTs
NVM, are looking to raise £50m, split as follows: £15m for Northern Venture Trust, £15m for Northern 2 VCT and £20m for Northern 3 VCT. Investors are free to choose which they invest in, and I suspect Northern Venture Trust will be the most popular as it is the best-performing and has the highest yield. However, all three of these ordinary share top-ups have high dividend yields and are of an excellent calibre. As in previous years, expect an incentive to invest early and differing charging structures according to whether applications are advisory or execution only. It sounds an awful lot of money to be raising, but as long as the wider markets do not collapse I imagine NVM will get very close to it.
I regret not investing in Foresight’s solar offerings a few years back, but I took a cautious approach as so many VCTs and Enterprise Investment Schemes were launching in the renewable space and some certainly had questionable experience. At the time Foresight did stand out. They had been investing in solar assets for a number of years and it remains mainstay of their business having experienced considerable success thus far. Their current solar VCT is still open looking for investment having raised £6m. I also expect a top up offer (or similar) to Foresight 1, which is still the best performing VCT having paid out close to £2 per share in dividends. They might also look to raise money for another generalist VCT they took over from Acuity, which needs money in order to make new investments. The Foresight team have been working hard to turn around what was frankly a basket case portfolio they inherited.
Albion struggled raising money last tax year for some reason. It might be to do with having so many VCTs in their linked offer. It was six last year and seven the year before. This simply put many investors off in my opinion. Hopefully they will have learnt from this and will come back with a more focused offer. They have got a good long-term track record and many of their VCTs contain a good mix of interesting and more esoteric investments.
Mobeus had a storming year last year, probably on the back of three or more years of consistent dividends across their VCTs and a couple of spectacular winners. I am not sure they need much more money this year, so any new fund raising is likely to be on a small scale but is certainly worth considering.
I have invested in Maven VCTs every year for the past seven years. Last year, they really caught investor’s imagination and their first offer sold out within weeks. They subsequently launched a further top up to Maven 4, which was also popular. Whether they will be in demand this tax year remains to be seen, but as their offers are normally relatively small it is usually best to get in quick. Maven’s underlying holdings are often very different to many of their peers. For instance, utilising their Scottish connections they typically have oil service exposure in the portfolio, which has proved beneficial over recent years.
In concussion, the case for VCTs remains strong. Dividends are flowing and in my view the best are getting better. Large offers will not sell particularly quickly, but the sooner you or your clients invest, the sooner the dividend tap can be turned on.