More than nine in ten (94%) adviser clients are satisfied with their experience of venture capital trusts (VCTs), according to new research from the Association of Investment Companies (AIC) conducted by Research in Finance.1
In the AIC’s survey, advisers said more than two-thirds of their clients (68%) feel that by using VCTs they’re supporting UK entrepreneurs2 and 67% of clients value the growth potential of backing young companies early.
Nearly two-thirds of adviser clients (62%) believe that by using VCTs they’re supporting cutting-edge science such as healthcare and technology innovations3 and 52% of clients appreciate they can support green technologies by using VCTs.4
Advisers reported that VCTs’ portfolio diversification, tax-free dividends, ability to trade on a stock exchange and proven track record were benefits of VCTs over other forms of tax-efficient investment.
Nick Britton, Head of Intermediary Communications at the Association of Investment Companies (AIC), said: “The research highlights a range of motivations for using VCTs beyond the obvious tax benefits. Clients like the feeling that they’re supporting UK entrepreneurs, backing cutting-edge science and getting in on the ground floor by backing young companies early. While VCTs remain high-risk, they now have a well established track record and it’s encouraging that the overwhelming majority of clients are satisfied with their experience of VCTs.”
Advisers reported that clients are most likely to spend any tax-free dividends they receive from VCTs (47%), followed by reinvesting them in VCTs (36%) and reinvesting them in other types of investment (13%).
Almost all advisers (99%) recognise that VCTs offer tax benefits. Of this group, 86% believe the upfront income tax relief is VCTs’ most important tax benefit, ahead of tax-free dividends (8%) and tax-exempt capital gains (6%).
Choosing a VCT
41% of advisers feel that the VCT manager’s reputation is the most important factor when researching a VCT to invest in, followed by past performance (32%) and the merits of specific portfolio holdings (12%).
ESG and COVID-19
59% of advisers agree that the pandemic has made ESG considerations more important to their clients.5
Weighted average VCT performance to end February 2021
| Performance measure | Share price total return (%) | Share price total return (%) | Share price total return (%) | Share price total return (%) |
| Performance from | 01/03/2020 | 01/03/2018 | 01/03/2016 | 01/03/2011 |
| Performance to | 28/02/2021 | 28/02/2021 | 28/02/2021 | 28/02/2021 |
| Duration | 1 year | 3 years | 5 years | 10 years |
| VCT weighted average | 8.87 | 16.30 | 34.98 | 139.08 |
Source: AIC/Morningstar.
Notes:
- The research was completed by Research in Finance on behalf of the AIC between 1 and 10 February 2021. The research consisted of an online survey of 154 independent financial advisers and financial planners who recommend VCTs to clients.
- 60% of advisers agreed that by using VCTs their clients feel they’re helping UK entrepreneurs. 8% strongly agreed.
- 56% of advisers agreed that by using VCTs their clients feel they’re supporting cutting-edge science such as healthcare and technology innovations. 6% strongly agreed.
- 47% of advisers agreed their clients appreciate that they can support green technologies by using VCTs. 5% strongly agreed.
- 47% of advisers agreed the pandemic has made ESG considerations more important to their clients. 12% strongly agreed.
