aim Bias to tech and healthcare has seen average returns for the index struggle since 1998-99
VCT investors who invested in Aim-related products in the 1998/1999 tax year will have seen an average return of around 1%pa since then, according to Allenbridge.
At first glance this appears to be quite a poor return on capital, yet the figure reflects a variety of collective investment vehicles investing in the Aim market.
Individual Aim venture capital trusts within this have achieved significantly higher returns.
The Friends Ivory & Sime Aim VCT, for example, which launched in December 1998, has returned around 5%pa to investors on average since launch. This figure is based on the last published dividend returns available.
David Knight, head of research at alternative investment specialist Allenbridge, said: 'When considering the returns available from VCTs, it is important to remember that these returns are net of tax, as opposed to returns from a unit trust which are taxable unless placed in an Isa wrapper.'
Another point to consider, he added, was that investors in VCTs are effectively only risking 80p in the pound, as 20% income tax relief is available upon investment. When this is built into return calculations, then returns are much more impressive.
The sector average rises to 8%pa, while that of the Friends, Ivory and Sime Aim VCT becomes 13% per annum.
Knight added: 'The last 18 months have been very tough in the Aim market, and has seen valuations and trust NAV's crash. Falling stock markets have badly affected the returns available. Given this, a real return on capital ventured of 13% is quite reasonable.'
The Aim VCT trust is now fully invested according to manager Robert Mitchell, who also manages the company's Aim Investment Trust, having raised £36m over two issues.
Mitchell admits to being dissatisfied with the trust's performance to date, and said returns of up to 50%pa could realistically have been anticipated at the outset, given the type of companies invested in.
The level of the index, he said, is now below where it was when the fund launched in 1998. According to Mitchell, the Aim market is heavily slanted towards healthcare and technology companies and this is reflected in the portfolio, with investments in eight healthcare and pharmaceutical companies and 12 in the software and services sector.
Outside of these sectors, the trust is quite well diversified, with significant holdings in support services, media and photography, telecommunications and leisure.
The trust's largest holding is in Transense Technology, which accounts for some 13.8% of assets invested. The next largest holding is a long-dated gilt, in which the trust's free assets are kept, which accounts for some 7% of assets. These assets are used to top up holdings in companies which have performed strongly.
Other companies favoured at the moment include vodka bar chain operator Inventive Leisure, in which Mitchell has a 6.3% holding, 5.7% in biotechnology company Alizyme and 3.3% in facilities management group Maclellan.
Mitchell continued: 'We're putting primary capital into small companies, which in some cases are not far removed from start-ups. The real returns on companies like this will not be seen for some time, so an investment horizon of at least three and more realistically five years is required for this kind of product.'
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