Top performing VCTs over last 10 years are now paying consistent dividends
VCTs have come of age. 18 years since their creation, they continue to provide funding for small companies with potential for growth, as well as generous tax benefits to their investors. Recent research from the Association of Investment Companies (AIC) on VCT member dividends suggests that the highest performing VCTs are also offering a source of consistent tax-free income.
Of the ten highest performing VCTs, ProVen Growth & Income VCT has paid out the biggest total yield, at 154.9p per share over the 12 years since launch. Baronsmead VCT has paid the second biggest, at 118.35p per share over 16 years.
All of the top ten highest performers come from the Generalist VCT sector and nine of the ten have consistently paid dividends for at least a decade. With dividends remaining strong through the recession in 2008, the sector is established as one providing a source of regular, consistent income even in rocky market conditions.
The Generalist VCT sector is currently yielding an average of 9.6%, whilst the VCT AIM Quoted sector is yielding an average of 6.3% and the VCT Specialist: Technology sector is yielding an average of 3.8%. The VCT Specialist: Media, Leisure and Events sector is yielding a high 15.2%.
Over ten years, the strongest VCT performer is British Smaller Companies VCT, up 359% in share price total return terms. The average VCT is up 88% over the same period. The second top performing VCT is Northern Venture Trust, up 297% over ten years. British Smaller Companies VCT has paid out a total dividend of 63.89p per share since 1998, while Northern Venture Trust has paid out 100.20p per share over the same period.
Also performing well are ProVen Growth and Income, up 226%, ProVen VCT, up 220% and Maven Income and Growth VCT, up 204%.
Comment from managers in the VCT sector
Stuart Veale, Managing Partner of Beringea LLP, the Manager of the ProVen VCTs, said: "The unique tax-free status of VCT dividends, combined with the 30% income tax relief on the initial investment, make VCTs a very attractive option for investors looking for income. The ProVen VCTs have recognised the importance of high income to investors for many years, as demonstrated by the market leading dividend payment record of ProVen Growth & Income VCT and ProVen VCT over the last 10 years."
Andrew Garside, Partner at ISIS Equity Partners. Managers of Baronsmead VCTs said: "The payment of dividends is an important way to reward shareholders. Through the retention of profits realised from the sale of investments in earlier years, the Baronsmead VCTs have established a track record of paying regular, consistent dividends which is an attractive feature that is valued by investors. When shareholders of the Baronsmead VCTs were asked to indicate a preference for income or capital growth on a scale of 1 (maximum income) to 10 (maximum capital growth), the average response was 6.0 in 2006 whereas this was 4.8 in 2012. These results show the increasing importance of dividends as part of total return in recent years."
Mark Wignall, Manager of the Mobeus Income & Growth VCTs, said: "We are seeing that consistent performance and high levels of tax free income are attracting more interest from investors in VCTs as a pension alternative. In this low interest rate environment, we expect a very strong fundraising season, particularly for the established generalist VCTs."
David Hall, Managing Director of YFM Private Equity Limited, manager of the British Smaller Companies VCTs said: "VCTs are increasingly finding a place in investors' portfolios. In an era of low interest rates and depressed economic conditions, investors have been attracted by the high single digit yields that a small number of VCT managers have consistently produced. The best performing VCTs have not only maintained dividend pay outs but also preserved the capital value of investors' shareholdings during this period – this sets a benchmark for the industry."
Tim Levett, Chairman of NVM Private Equity, Managers of Northern Venture Trust, said: "The top generalist VCTs, and in particular the Northern and Baronsmead funds, have a track record stretching over many years of paying consistent dividends and either maintaining or slowly growing the net asset value per share. This has been achieved on the back of building a portfolio of later-stage deals which generate a strong income flow and a steady stream of realisations to support the dividend and the growth in net asset value. In general, each fund has a core portfolio of thirty or more underlying holdings which provide diversity and much lower volatility than may be imagined would be the case for unquoted investment.
"A combination of consistent total return and tax free dividend performance make top performing generalist VCTs an interesting pension planning alternative to SIPPs and, with the restrictions now in place on the amount that can be invested in SIPPs, Wealth Managers are increasingly recommending top performing VCTs to their clients. For example, Northern Venture Trust's tax free yield is currently 7.7%, which alone is very attractive and is also enhanced by the opportunity to reinvest dividends in new shares issued at net asset value; and get income tax relief on the new investment."
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