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

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

2 Do you currently recommend VCTS?

3 Agenda What are VCTs? Why consider VCTs? Considerations How to research VCTs?

4 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

5 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

6 What are VCTs? Maximum investment for investors 200,000 Sectors Generalist AIM Quoted Specialist: Healthcare & Biotechnology/ Media, Leisure & Events/ Environmental

7 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

8 Why consider VCTs?

9 Why consider VCTs?

10 Why consider VCTs? VCT Performance to Dec 31 st 2014 based on 100 1yr 3yr 5yr 10yr VCT average

11 Why consider VCTs? VCT Generalist Average Performance to Dec 31 st 2014 based on 100 VCT generalist sector 1yr 3yr 5yr 10yr

12 Why consider VCTs? VCT AIM Quoted Average Performance to Dec 31 st 2014 based on 100 VCT AIM Quoted sector 1yr 3yr 5yr 10yr

13 Dividends strong record Looked at top 20 performing VCTs over 10 years - average tax free dividends since launch 79.37p per share Financial crisis 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)

14 Dividend yields AIC VCT members: Generalist sector 8.1% AIM Quoted 5.6% VCT Specialist: Environmental 2.7% VCT Specialist: Media, Leisure & Events %

15 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

16 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

17 How to research VCTs? AIC website - Training online, seminars, bespoke, newsletter Data, news, videos

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