Discovering VCTs “Great oaks from little acorns grow” January/February 2015 Annabel Brodie-Smith Communications Director, AIC

Do you currently recommend VCTS?

Agenda • What are VCTs?

• Why consider VCTs?

• Considerations

• How to research VCTs?

What are VCTS? • VCTS are:

Investment trusts invest in young innovative companies

or new shares of AIM listed companies

• Young companies struggle to raise finance

• VCTs bridge the ‘finance gap’ by allowing small

investors to pool finances in a diversified portfolio

What are VCTS? • VCTS must invest 70% of assets in:

Small companies (up to £15m in size)

AIM shares

• These are more risky than large established

companies

• Must invest money within three years

What are VCTs? • Maximum investment for investors £200,000

• Sectors

• Generalist

• AIM Quoted

• Specialist:

Healthcare & Biotechnology/

Media, Leisure & Events/ Environmental

Tax benefits to compensate for risk • 30% tax relief on subscription for new shares when hold those shares

for 5 years

• No income tax on dividends

• No capital gains tax

Why consider VCTs?

Why consider VCTs?

Why consider VCTs? VCT Performance to Dec 31st 2014 based on £100

1yr 3yr 5yr 10yr VCT average 107 133 159 188

Why consider VCTs? VCT Generalist Average Performance to Dec 31st 2014 based on £100

1yr 3yr 5yr 10yr VCT generalist sector

110 133 164 197

Why consider VCTs? VCT AIM Quoted Average Performance to Dec 31st 2014 based on £100

1yr 3yr 5yr 10yr VCT AIM Quoted sector

102 158 173 119

Dividends – strong record • Looked at top 20 performing VCTs over 10 years

- average tax free dividends since launch 79.37p per share

• Financial crisis 2008 - 19 out of the 20 VCTs paid out a dividend

• Dividend heroes over 15 years - Proven Growth &

Income (158.9p total pence per share)

• Baronsmead VCT (133.41p)

• Northern Venture Trust (121.10p)

Dividend yields AIC VCT members:

• Generalist sector – 8.1%

• AIM Quoted – 5.6%

• VCT Specialist: Environmental – 2.7%

• VCT Specialist: Media, Leisure &

Events - 24.7%

Considerations • Managing a VCT takes specialist knowledge

• More due diligence before making an investment

• Can appoint someone to the board of the investee company

• When an investment is sold need a buyer & to negotiate over costs

• VCTs have higher management costs than other

investment companies

• Some VCTs have a performance fee

Considerations • VCTs invest in small younger companies – more risk

• Methods of valuing investments are estimates - every 3 or 6 months

• VCTs have to meet strict tax rules to obtain tax status

• Failure to meet conditions could lose tax benefits

• VCTs generally smaller and therefore less liquid

• Some offer a share buy-back as way to sell shares

How to research VCTs? • AIC website - http://www.theaic.co.uk/financial-advisers

• Training – online, seminars, bespoke, newsletter

• Data, news, videos

• www.taxefficientreview.com

• www.taxshelterreport.co.uk

Disclaimer Any information contained in this presentation has been prepared for information purposes only. Whilst the AIC / AIC Information Services Limited has taken all reasonable steps to verify such information, it does not accept responsibility for any errors or omissions or for losses of any nature incurred by any person howsoever caused. The information contained in this presentation does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. This presentation may not be printed, reproduced or further distributed to any other person or published, in whole or in part, for any purpose. Please refer to http://www.theaic.co.uk/aic/terms-of-use/ for further information relating to our disclaimer policy. The Association of Investment Companies (AIC) is a company limited by guarantee whose registered office is 9th Floor, 24 Chiswell Street, London. EC1Y 4YY. Its trading and registered office addresses are identical. The AIC is a company registered in England and Wales and its company registration no. is 4818187. The AIC is registered for VAT and its registration no. is 396992669. AIC Information Services Limited is a company registered in England and Wales with registration no. 01910539.