The Foresight Enterprise VCT has announced an offer for up to £30 million (£20 million + £10 million overallotment). The VCT has net assets of £148.2 million and a portfolio of 44 companies.
Over the five years to September 2023, the VCT generated a NAV total return of 32.3%. The VCT targets a dividend of 5% of NAV.
Nicholas Hyett, Investment Manager at Wealth Club comments:
“The Foresight Enterprise VCT targets more mature businesses, seeking investments that are either already breaking even or pretty close. That means it’s often the last external investor to provide funding to its investees.
The focus on later stage businesses, together with a large portfolio of older legacy assets, has helped the VCT develop an enviable track record of exits in recent times. A good chunk of the remaining portfolio is profitable, particularly in the top ten largest holdings, providing potential for further realisations in future.”
About Venture Capital Trusts (VCTs)
Why VCTs are worth investing in
Most investors are initially attracted to VCTS for the tax breaks, and they are generous. Investors can get up to 30% back in income tax relief up front, any dividends paid by the VCT are tax free and growth is free of capital gains tax too.
However, VCTs are more than just a tax planning tool. They’re probably the best way for UK investors to access fast growing smaller companies. Revenue growth from VCT investees far outstrips what you see in main market listed companies, and the result has been some attractive returns for investors over the longer term.
Exposure to high growth, smaller companies also has the potential to diversify a conventional portfolio. Long-term performance is often only loosely correlated with the wider economy. Highly disruptive businesses grow by taking market share from incumbents rather than relying on market growth.
The rules governing VCTs mean they’re also an excellent way to back smaller businesses. It’s their role providing support to the next generation of UK start-ups, driving innovation and creating jobs, that earns them the tax relief from the government – and many investors feel that this is something they wish to support too.
Who should consider them?
VCTs are higher risk, and while they’re listed on the stock market, in order to qualify for tax relief investors must hold the shares of at least five years before selling – making them inherently long-term investments. Unlike most conventional funds and shares the minimum among you can invest is comparatively high – often £3,000 or more. All of this means they are best suited to wealthier or more sophisticated investors.
VCTs are popular with two groups in particular.
The first is higher earners or wealthier investors who are limited in what they can put into more mainstream tax wrappers. Those who already use full £20,000 ISA allowance or whose pension contributions are tapered due to the amount they earn. The £200,000 a year annual VCT allowance is generous and can save higher earners up to £60,000 in upfront income tax.
The second group is those in, or near, retirement who use VCTs’ tax free dividends to supplement income from other sources. Because they’re higher risk, VCTs shouldn’t be considered a replacement for a pension, but they can help to top-up income from more conventional sources.