Fund of the Fortnight: Unicorn AIM VCT
A niche area that could be of interest for long-term investors who are comfortable with higher risk investments, is Venture Capital Trusts (VCTs).
These are specialist investment funds which list on the London Stock Exchange and facilitate investment into small, unquoted enterprises that must carry out their trade wholly or mainly in the UK.
As higher risk investments, the Government provides a range of tax incentives for investing in VCTs including a 30% income tax relief for investing in a VCT new shares issue (which must be repaid if the shares are sold within five years), tax free dividends and capital gains.
The VCT market is experiencing something of a sweet spot at the moment, with many managers reporting strong pipelines of new investment opportunities as the UK economic recovery picks up pace and banks remain reluctant to lend to SMEs.
At the same time, there are signs that demand for VCTs could be set to increase given the scarce supply of investments offering a decent income yield as well as the impending reduction in the annual and lifetime pension allowance.
Early expectations that the current financial year would be a good one for VCT fund raising were confirmed this week with figures from the Association of Investment Companies (AIC) showing a record £94 million funds raised in the first half of 2013 including both new issues and enhanced buy backs.
The Unicorn AIM VCT has recently started raising funds for the 2013/14 tax year, and is aiming to raise £20 million. This is already the largest AIM-focused VCT, with net assets of approximately £74 million and a strong track record of adding value.
This may be an attractive option for a VCT investor seeking to diversify away from other types of VCTs that primarily invest in unquoted companies.
AIM VCTs invest predominantly in companies listed on AIM (Alternative Investment Market), the London Stock Exchange’s market for small growth companies and home to some of the largest companies that still qualify as VCT investments.
Unicorn AIM VCT targets investment into companies with established business models that are cash generative and have leading positions in growing markets. The team are able to source deals from their extensive network of professional investors, and tend to focus on companies with valuations in the £15-30 million range.
The current portfolio consists of a diverse and mature set of companies, with 47 holdings in the VCT-qualifying segment of the fund. The VCT will also give investors some exposure to three of Unicorn’s highly-regarded open-ended funds which can be held as part of the “non-qualifying” section of the VCT.
Examples of some of the key holdings include Abcam, a global supplier of protein research tools, Anpario, a producer of natural food additives and Tracsis, a provider of resource optimisation software.
The manager, Unicorn Asset Management Limited (“Unicorn AM”) specialises in small and medium sized businesses, benefiting from a large and experienced investment team. Its lead manager Chris Hutchinson has a strong track record managing the Unicorn British Smaller Companies fund since inception in 2006.
Sophie Muller is a research analyst at Bestinvest