Retirement planning is main use of VCTs, 56% of users

Alexland

NedS said:

As a VCT noobie, I'm watching with interest how this plays out. I am considering if this would be a useful strategy for extracting funds from the SIPP and getting the tax back as @jamesd has highlighted. As I'm a few years away from drawdown yet, plenty of time to research the idea.

So far the Wealth Club service seems pretty good. I phoned them with a few queries before applying this morning and got through to someone polite and knowledgeable straight away. The online application was easy and generated an electronic document to sign, details of where to transfer the money, they setup my portal access and have just sent me a secure message to confirm they have processed the application and forwarded it onto the provider.

On the phone WC confirmed they don't offer a nominee service for VCTs so I will just get issued with the share and tax certificates. They confirmed the 0.10% rebated commission is issued as a cheque provided at least £20 of rebates across all VCTs (not per VCT) have accrued and there's a page where you should be able to see them building up on the portal.

deltrotter said:
I also opened an x-o account to build my VCT shares. Applied for Octopus titan VCT in November and received the share certificate and income tax certificate yesterday. Share certificate now in the post to x-o along with crest transfer form.
The reason I went with x-o is due to a lemon fool post saying you can leave orders to sell with the VCT issuer when they do buy backs. Note: I am five years of doing that...

I'll have a think about using Jarvis X-O as a nominee account as it looks like my new VCT can't be sold directly with either Winterflood or Panmure Gordon so it would need to go via a stockbroker eventually.

I'd rather not have a collection of paper certificates and doubt my total VCT investments will ever go much higher than the FSCS limit. However I guess dividends would also then go into the nominee account and it might make applying more complicated in future as you would need to give nominee account contacts each time to qualify for existing customer discounts.

deltrotter

"might make applying more complicated in future as you would need to give nominee account contacts each time to qualify for existing customer discounts."

Good point.

Can anyone confirm this is the case. I was presuming I could tick the box, existing shareholder on next application in same fund via wealth club and the fund would spot check some.

Alexland

You might have to check with WC on this aspect (would be interested to hear what they say) but I will probably keep them as certificates for at least the first 5 years.
Was looking at the remaining pipeline of VCT offers for the remainder of this tax year and nothing really ticked my boxes for large, diversified with a good income profile.
I'm tempted to ask if I can just put more into Baronsmead. I'll have another look tonight but does anyone have any suggestions that I might have overlooked?

jamesd

If it helps, I'm quite likely to buy some of that Baronsmead offer soon.

The more mature - longer running - VCTs are likely to be selling maturing investments to support dividend flows. Younger ones might not have any sales so might not be able to pay dividends in their initial years.

I've had similarly positive experiences with Wealth Club and I'm happy to continue using them for now, in part because I like the dividends and don't have any pressure to sell, but will have income that allows buying more VCTs and getting tax relief eliminated in a few years, as it all ends up within my personal allowance once I'm done withdrawing most taxable money from pensions.

Alexland

jamesd said:

If it helps, I'm quite likely to buy some of that Baronsmead offer soon.

Looks like Ken Wotton will have more time to focus on managing the Baronsmead VCTs and the associated Gresham House small companies funds they part invest in following today's news on Strategic Equity Capital. For an active manager (usually somewhere near estate agents in the food chain) he seems alright preferring to invest in profitable small companies rather than the more speculative ones which might be little more than a consumer brand concept.

https://portfolio-adviser.com/gham-and-harwood-capital-battle-spreads-to-new-investment-trust-in-370m-merger-plans/

jamesd said:
The more mature - longer running - VCTs are likely to be selling maturing investments to support dividend flows. Younger ones might not have any sales so might not be able to pay dividends in their initial years.

Yes some of the younger and smaller VCTs seem to be able to count the number of successful exits on one hand so it's impossible to judge them. I'm a fairly conservative investor so prefer to see a bit of pedigree especially if making a 5 year commitment as selling early would be an unacceptable hit to the family balance sheet. I've watched quite a few video interviews with Ken, dug through the annual report, supporting literature and learnt some new stuff about the companies they are investing in and it all seems ok. Unsure I really need to look elsewhere this tax year as BVT seems diversified enough across MBOs, unquoted, AIM, sectors, etc. Hmm...

jamesd

Hmm covers it, no perfect answer and the amount in itself isn't excessive for one VCT. Yet diversification and maybe existing customer offers are around. But you seem to hate paperwork so that may be the deciding factor.

Alexland

jamesd said:

Hmm covers it, no perfect answer and the amount in itself isn't excessive for one VCT. Yet diversification and maybe existing customer offers are around. But you seem to hate paperwork so that may be the deciding factor.

I just applied to increase my investment in Baronsmead to £23k almost the full amount that I will have available for tax relief and should get around 40% of my money back from the tax refund and dividends before the end of next tax year. The generous tax relief almost works like leverage in how it can multiply gains and even better unlike leverage absorb losses.

I think it's what I was looking for and didn't find in the past when digging into more focused VCTs that were on offer at the time where the performance was more hit and miss. At least with Baronsmead the broad diversity should give a pretty average result compared to the overall VC market and total portfolio failure is extremely unlikely. There's a 10 year performance table of the largest generalist VCT managers in the new Investment Trust Handbook 2022 that shows it's performance as roughly in the middle of them as expected.

Also I thought this podcast and white paper was interesting by thinking of VC as it's own asset class and the diversification benefits it might provide in an investor's portfolio to provide a higher return for the same level of overall risk.

https://www.hardmanandco.com/39-moving-the-eis-and-vct-industry-from-tax-efficiency-to-venture-capital-with-benefits-brian-moretta-of-hardman-co/

deltrotter

Very interesting Alexland, thank you.

Link directly to the paper here:

https://www.hardmanandco.com/wp-content/uploads/2021/11/TES-white-paper-How-much-should-clients-invest-in-venture-capital-November-2021.pdf

Alexland

deltrotter said:

Very interesting Alexland, thank you.

I did think some of the growth assumptions he used for scale-up (15% pa) and seed (22% pa) were ambitious and higher than generally seen in the above results table over the last decade especially for the private investor paying hefty management fees.

Still there are some interesting ideas such as VC only having a 0.47% correlation to quoted equities (compared to bonds at 0.37%) with VCT returns tending to follow on 5-6 quarters after positive periods in stock markets (which bodes well for investing now although some asset managers are complaining there's too much VC money chasing too few good opportunities) but they still seem to crash at the same time as other risk assets.

The other Hardman podcasts in that series are good and I've been reading the past couple of years of infrequent postings on The Lemon Fool VCT board and it seems clear that experienced VCT investors are concerned about how future performance will be affected by the recent changes in qualifying investment rules that will force asset managers to take more risks and not just pick safe assets. I'm feeling pretty comfortable with Baronsmead for this tax year to get the dividends flowing early, they have already rebaselined the divi for the new rules, but I might be more adventurous next tax year.

BritishInvestor

Alexland said:

deltrotter said:

Very interesting Alexland, thank you.

I did think some of the growth assumptions he used for scale-up (15% pa) and seed (22% pa) were ambitious and higher than generally seen in the above results table over the last decade especially for the private investor paying hefty management fees.

Still there are some interesting ideas such as VC only having a 0.47% correlation to quoted equities (compared to bonds at 0.37%) with VCT returns tending to follow on 5-6 quarters after positive periods in stock markets (which bodes well for investing now although some asset managers are complaining there's too much VC money chasing too few good opportunities) but they still seem to crash at the same time as other risk assets.

The other Hardman podcasts in that series are good and I've been reading the past couple of years of infrequent postings on The Lemon Fool VCT board and it seems clear that experienced VCT investors are concerned about how future performance will be affected by the recent changes in qualifying investment rules that will force asset managers to take more risks and not just pick safe assets. I'm feeling pretty comfortable with Baronsmead for this tax year to get the dividends flowing early, they have already rebaselined the divi for the new rules, but I might be more adventurous next tax year.

"I did think some of the growth assumptions he used for scale-up (15% pa) and seed (22% pa) were ambitious and higher than generally seen in the above results table over the last decade especially for the private investor paying hefty management fees."

And the last decade has been a pretty decent period for returns.

"Still there are some interesting ideas such as VC only having a 0.47% correlation to quoted equities (compared to bonds at 0.37%) "

I had a quick look at Baronsmead and it fell by similar amounts to a global equity tracker during market turbulence, whereas a high-quality short/medium duration bond fund tended to remain broadly flat. This (to me) is far more important than correlations in (I assume) benign times.