Category: EIS+VCT

Maven Renovar VCT (MRV) – Requisition and Voting

As previously noted, the Maven Renovar VCT has received a requisition from Paul Jourdan, the former manager, to replace the board – see https://www.investegate.co.uk/announcement/rns/maven-renovar-vct-plc–mrv/receipt-of-requisition-request/8955955 .

It seems to have gone very quiet since that announcement. Is the result a foregone conclusion or is there going to be a proxy battle as usually happens in such circumstances?

Here are my comments in case you have not yet voted on the resolutions:

As a long-standing shareholder in the Amati AIM VCTs I welcomed the change of fund manager to Maven because the performance of the Amati AIM VCT has been dire in terms of total return. I hold a number of VCTs (including some Maven ones) and the Amati managed one has been one of the worst in terms of performance. I would have sold my holding long ago if I had not been hampered by originally claiming capital gains rollover relief.

The prospect of Paul Jourdan continuing to be involved in the management of the company does not bode well in my view. We need to support the new board and Maven and let them get on with the job without the distractions of fending off general meeting requisitions.

I and my wife have therefore voted as per the recommendations of the current board.

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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Maven Renovar VCT (MRV) – Requisition Request

The company has announced that it has received a requisition from Paul Jourdan, the former manager, to replace the board – see https://www.investegate.co.uk/announcement/rns/maven-renovar-vct-plc–mrv/receipt-of-requisition-request/8955955 .

As a shareholder in the company I have an interest in this matter. My immediate feeling is that I will need some convincing to back Mr Jourdan. This VCT has been one of the worst performing and from my records the total return in the last 3 years has been -22.2%, -22.6% and -2.4%. My records go back to 2005 and there have been several mergers and changes of name since then.

However I will wait to see the full arguments before coming to a conclusion on how I should vote on the requisition.

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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The Changing Faces of VCTs

I have received a document entitled “The Changing Faces of VCTs” – probably because I hold a number of them having invested some years ago. It’s a good summary of the successes of some Venture Capital Trusts and how they could be improved – the limits on funding and age of investee companies do inhibit the growth of successful businesses.

The rules for VCTs are now quite restrictive and they are no longer as attractive as they used to be. It is clear from this report that VCTs have been successful in stimulating investment in early-stage companies. What is not so clear is whether such investments have given good returns to investors in VCTs, even after the tax reliefs that investors obtain.

With high management charges and a high risk of failures in investee companies (which tend to drop out of the fund performance figures), I am not convinced that they are great investments at present. The main beneficiaries have been the VCT managers and the Government, not the retail investors in them.

You can read the VCTA report here: https://www.vcta.org.uk/news/vcta-launches-30th-anniversary-report%3A-the-changing-faces-of-vcts

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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Year End Review of 2024

For the last 25 years I have been reporting on how my stock market investment portfolios have performed in the last year. This is my report for the calendar year 2024.

I am not very consistent as regards performance measured in total return. The year 2021 was a very good year but all the profits were wiped out in 2022. The year 2023 didn’t manage to beat the FTSE All-Share which is my benchmark objective. But 2024 showed a good recovery with a total return (capital and dividends) of 11.2% versus the FTSE All-Share of 5.5% (capital only – the dividend yield is about 4%).

It’s worth bearing in mind that my portfolio is very diversified across FTSE-100, FTSE-250 and smaller company (e.g. AIM) shares listed in the UK. I also hold a number of UK investment trusts which gives me exposure to overseas markets, and some Venture Capital Trusts (VCTs). Although I have some emphasis on AIM shares, they are not the very speculative ones. With 74 holdings altogether I am never going to significantly outperform benchmarks but at age 78 I feel no need to take an aggressive stance on investments.

The reason for my annual analysis is to pick out my investment mistakes of which there are always a few, which I will highlight in this note. Learning from one’s mistakes is an essential investment discipline.

I lost money last year on my holdings in BP, Rio Tinto, Safestore, Bango, Bioventix, DotDigital, Judges and Tracsis. The last 5 are all AIM shares and I sold Tracsis at the year-end but I see no reason to sell the others. I also sold some BP but held on to Shell. I consider oil/gas companies to be irrationally undervalued, mainly by institutions who have been bitten by the ESG bug. AIM company shares still seem to be out of fashion and it was difficult to make money on small cap shares last year. I bought several but they proceeded to go nowhere.

Big wins last year were Diploma, Paypoint, Polar Capital Technology Trust, Unilever, GB Group, Polar Capital Holdings and Intercede (the last one issued a positive trading statement today but it’s already highly rated).

In the property sector the Schroder REIT turned a profit but losses on TR Property Trust offset the gains. The property sector is still in the doldrums it seems with no recovery in capital values.

Our VCT shares continued to lose capital value but the tax-free dividends have held up so I will continue to hold. They continue to be negatively affected by the malaise in small cap shares.

Our large holdings in the Fundsmith Equity fund and Scottish Mortgage Trust did well again last year so I will continue to hold.

I have decided to sell one of our NS&I Index-Linked Savings Certificates – held since 2007 – I invested £15,000 then and it’s now worth £29,720, mostly as a result of inflation. But likely return on these is now much less so I do not consider them worth renewing. Savings rates for instant access deposits are now much better than in 2007 and more comparable to inflation. Returns on the stock market are likely better.

What are the investment prospects for 2025? I have no idea. I just like to buy shares in well managed companies with good prospects. That has worked well in the past and ensured decent long-term returns. My compounded total return over the last 25 years is about 10 times which has meant my wife has been kept busy on her expensive hobbies. It also means that unlike most people I have got richer in retirement, not poorer. But our offspring are looking for some financial assistance so they will soak up some of the profits. I will also be reviewing my usual charity donations near the end of the tax year and look at what we can gift out of surplus income which I track carefully.

It’s important to use all the potential IHT reliefs now that avoidance has become more difficult.

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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Thames Ventures VCT Mergers – A Number of Concerns

 Thames Ventures VCT 1 and 2, currently managed by Foresight, are proposing to merge and rename the merged company as Foresight Ventures VCT. I currently hold TV1 as a result of past holdings in Pennine AIM VCT, Pennine Downing AIM VCT, Downing One VCT, et al. These companies are a typical example of unsuccessful VCTs merging, renaming, and resetting performance fees when they failed to meet targets. It’s no different in this case.

Merging of small VCTs is usually justifiable so I won’t be voting against that. But I have voted against the proposed performance incentive agreement. Performance fees are rarely justifiable in any investment trust and certainly not in this case. The management fees are already too high and with a base fee of 2.0% of NAV per annum if the investments are made successfully then the manager gets a return from the increase in the base fee. I do of course object to resetting of the existing performance fees just because they are under-water.

There is very little evidence that performance fees actually improve the performance of trust management.

Another negative aspect of the proposals is that the Investment Services Agreement with Foresight is being changed to remove the ability of the board to interfere in investment decisions. In successful VCTs the management decisions on new investments are carefully reviewed by the board of directors and have the final say on them. Unfortunately we have not been given a vote on that issue.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

VCTs – May They Live Long

Today I received my tax-free dividends from two of the Northern VCTs which I first invested in during 1995. They provide me with a good base level of income for living expenses although their overall portfolio performance has not been great. They only make sense after taking into account the associated tax reliefs.

The good news is that the European Commission has confirmed that the current tax reliefs can continue to apply until at least April 2035. There was some concern that a “sunset clause” would end the generous tax reliefs and make VCTs very unattractive. Many investors will have been holding back on investing in new fund raisings from VCTs until this issue was resolved.

VCTs do help to support smaller companies, currently way out of favour in public markets, and provide some extra diversity to our portfolios so I am happy to hold them. I tend not to bother “recycling” them to get the income tax relief associated with new VCT investments as the buy/sell spreads are high and the admin complexity is not worth the hassle.

See this press release from the AIC for more information: https://www.theaic.co.uk/aic/news/press-releases/aic-applauds-continuation-of-vcts

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Baronsmead VCT AGMs and VCT Prospects

Today (1/2/2023) I attended the two Baronsmead VCT AGMs (BMD and BVT) via a Zoom webinar, partly because of the train strikes today but partly because I did not expect any momentous events or questions to take place, and so it turned out. But they did get a number of shareholders attending in person despite the train strikes.

However despite me registering for the event some weeks ago I did not receive a zoom invite and had to chase that up just before the meeting.

Just looking at BVT results, their total return last year was -19.20% which was very similar to my overall portfolio return. They achieved a similar return on both quoted and unquoted holdings which is probably not surprising because the valuations of quoted companies will have been used as benchmarks for the latter (they claim to be the only “hybrid” VCTs with a mix of quoted and unquoted holdings). Both BVT and BMD run very similar portfolios). The result was much better in the previous year at a total return of 29.3%.

There were 6p in dividends paid last year which equates to a yield of 7.1% (tax free remember).

There were a number of good realisations last year including listed company Ideagen which I also held directly. That achieved a return on initial investment by the VCT of 13 times.  

But the Chairperson of BVT, Sarah Fromson, warned that returns are likely to be more volatile in future due to the change in VCT investment rules in 2015. They are having to invest in more immature businesses in essence.

Voting took place on a poll but on-line attendees could not vote so you had to submit your votes in advance which I did. For example, I voted against the remuneration report as did 1.37 million shareholders because pay in the Baronsmead VCTs seems to be going up substantially.

There were few questions from the audience. One issue that was raised was the fees paid by investee companies for directors nominated by the VCT or Gresham House which seemed to be increasing – now over £1million possibly. It was suggested that having nominated directors on boards assisted with control of the companies.   

Is it a good time to invest in VCTs? I think the jury is still out on that. We have not yet seen the result of the changes to the VCT investment rules and it is unclear whether the investment in more early stage companies will be successful. The valuation of such companies still seems high to me but it may be some years before we see whether the valuations are justified.

However VCTs are still raising funds so they must see opportunities to invest them. There may be a high demand by investors due to the high tax reliefs and good dividend yields but they need to be aware of possible changes to the taxation of VCTs due to the “sunset” clause in the legislation which was mentioned briefly in the BVT AGM.

There may be problems revising the legislation because, as reported in the FT today, the Government has a problem in that it has committed to revoking EU imposed legislation in the UK but has just added another 1,000 pieces of such legislation that have been discovered that will need reviewing. That means the total is now 3,700 laws and regulations to be considered and amended or discarded. That surely shows how bureaucratic we have become of late because of our former membership of the EU and there are so many obscure laws that even identifying them has proved to be a problem!

But the good news is that if they have not been reviewed by the end of 2023 then they are likely to be automatically dropped because of the   Retained EU Law (Revocation and Reform) Bill 2022 which is in the House of Lords at the moment. What that might mean for VCT legislation is not clear.

The AIC held a seminar on VCTs recently and you can see a report on it here:  https://www.theaic.co.uk/aic/news/press-releases/vct-managers-still-seeing-strong-investor-appetite

As I already have substantial VCT holdings I have not been adding to them recently as the returns achieved I do not consider that good (mainly due to high management costs including the hated performance fees) and I would prefer to see how these issues play out. The Government may have made statements supporting VCTs but we need definite commitments and no threats to remove the high tax reliefs on VCTs which is the only thing that makes them good investments.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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EDGE Performance VCTs, REITs and Paypoint

I am glad to read that Edge Performance VCT (EDGH) is planning to wind-up. I have written about this VCT several times in the past despite never holding it and I always considered it a basket case which seemed to be run more in the interests of the management and advisors than shareholders. ShareSoc ran a campaign on the company to try and get it reformed, but ultimately without success.

It has now been revealed that they paid dividends illegally for which they are asking shareholders to vote through a “whitewash”. The latest announcement also says: “As Shareholders will be aware, the Company’s net asset value has significantly reduced in recent months, with, among other things, market-related reductions in the portfolio valuation, a dividend paid on 6 May 2022, share buy-backs and the payment of advisers’ fees having substantially depleted the Company’s cash. As a result, the Board and the Investment Manager are of the opinion that the Company is sub-scale and that the Company’s ongoing charges ratio will be too high at approximately 14.89 per cent.

Following lengthy discussions with the Investment Manager as to the Company’s current position and the overall market outlook, the Board does not foresee any reasonable opportunity for the Company to grow in the short term. Accordingly, after careful consideration the Board believes that it is in Shareholders’ best interests that the Company be placed into a members’ solvent voluntary liquidation, with the intention that there will be an orderly winding down of the Company, realisation for cash of the Company’s assets and a return of that cash to Shareholders in a manner which will be intended to preserve VCT tax-reliefs”.

This decision is several years too late in my view while in the meantime managers and advisors have extracted large amounts of cash.

On another subject, my portfolio is down again today mainly because the share prices of property funds/trusts including REITs have fallen sharply. This is no doubt due to the rise, and prospective more rises, in interest rates. This might impact property companies when their debts need to be refinanced. This has affected all property companies, even those who have fixed their interest on debt at low levels and have many years to run before they need refinancing.

In a few years time, the position on interest rates may be very different as inflation is forecast to fall rapidly next year. Property companies should be long-term holding so I won’t be panicking over the latest share price falls.

Another share that has fallen today is Paypoint (PAY) which I hold. That’s despite recent director share buying including another deal today. What do they know that I don’t is the question one asks oneself in such circumstances. Perhaps they are convinced that the recently announced bid for another company is really a good deal when the market seems to think otherwise.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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VCT Investor Workshop

Today I attended a VCT Investor Workshop on-line run by the British Smaller Companies VCTs (BSV and BSC). These are two of the better performing generalist VCTs managed by YFM. It was a disappointing event.

There were presentations from investee companies Unbiased and SharpCloud which gave a general overview of the businesses but no financial information – such as sales, profits and what the VCT’s valuation is based upon. In other words, the key information about a business that any investor needs.

As I got the impression from other VCT managers that a year or two back the valuations of new deals were rising to levels that might reduce future returns I asked this simple question: “Are you paying less for new investments as I get the impression the market had become over-heated?”

The question was not answered. In fact few questions were answered, perhaps because the time allotted was minimal – perhaps 10 minutes which turned into 5 minutes in reality as other sessions overran.

I really don’t see the point of running events when not enough time is allowed for questions and key issues are ignored.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Dividend Tax Rate Cuts and VCT/EIS Schemes

Two little noticed changes in today’s Chancellor’s announcements are reductions in dividend tax rates and support for enterprise schemes. I quote from the announcements:

“In addition, the government will reverse the 1.25 percentage point increase in dividend tax rates from April 2023. This will benefit 2.6 million dividend taxpayers with an average saving of £345 in 2023-24 and additional rate taxpayers will further benefit from the abolition of the additional rate of dividend tax. This will support entrepreneurs and investors across the UK to drive economic growth”; and:

“The government is supporting companies to raise money and attract talent by increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP). The government remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them in the future”.

Does this mean that the “sunset” clause for dividend tax relief on VCTs will be removed after 2025? It is not clear.

See https://www.gov.uk/government/publications/the-growth-plan-2022-documents for details of the Chancellor’s Announcements.

There have been some adverse comments on the removal of the additional income tax rate of 45% but simplifying tax rates and structures has clearly been a priority so that is welcomed. The net cost to the Treasury of that change in 2023-24 is only £625 million. Not that I will personally benefit it is worth stating as I have very little “earned” income.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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