The highest performing venture capital trusts (VCTs) are offering a source of consistent tax-free income, research from the Association of Investment Companies (AIC) on VCT member dividends suggests.
Of the ten highest performing VCTs, ProVen Growth & Income VCT has paid out the biggest total yield, at 154.9p per share over the 12 years since launch. Baronsmead VCT has paid the second biggest, at 118.35p per share over 16 years.
All of the top ten highest performers come from the Generalist VCT sector and nine of the ten have consistently paid dividends for at least a decade. With dividends remaining strong through the recession in 2008, the sector is established as one providing a source of regular, consistent income even in rocky market conditions.
The Generalist VCT sector is currently yielding an average of 9.6 per cent, whilst the VCT AIM Quoted sector is yielding an average of 6.3 per cent and the VCT Specialist: Technology sector is yielding an average of 3.8 per cent. The VCT Specialist: Media, Leisure and Events sector is yielding a high 15.2 per cent.
Over ten years, the strongest VCT performer is British Smaller Companies VCT, up 359 per cent in share price total return terms. The average VCT is up 88 per cent over the same period. The second top performing VCT is Northern Venture Trust, up 297 per cent over ten years. British Smaller Companies VCT has paid out a total dividend of 63.89p per share since 1998, while Northern Venture Trust has paid out 100.20p per share over the same period.
Also performing well are ProVen Growth and Income, up 226 per cent, ProVen VCT, up 220 per cent and Maven Income and Growth VCT, up 204 per cent.
Stuart Veale, managing partner of Beringea, the manager of the ProVen VCTs, says: “The unique tax-free status of VCT dividends, combined with the 30 per cent income tax relief on the initial investment, make VCTs a very attractive option for investors looking for income. The ProVen VCTs have recognised the importance of high income to investors for many years, as demonstrated by the market leading dividend payment record of ProVen Growth & Income VCT and ProVen VCT over the last 10 years.”
Tim Levett, chairman of NVM Private Equity, manager of Northern Venture Trust, says: “The top generalist VCTs, and in particular the Northern and Baronsmead funds, have a track record stretching over many years of paying consistent dividends and either maintaining or slowly growing the net asset value per share. This has been achieved on the back of building a portfolio of later-stage deals which generate a strong income flow and a steady stream of realisations to support the dividend and the growth in net asset value. In general, each fund has a core portfolio of thirty or more underlying holdings which provide diversity and much lower volatility than may be imagined would be the case for unquoted investment.
“A combination of consistent total return and tax free dividend performance make top performing generalist VCTs an interesting pension planning alternative to SIPPs and, with the restrictions now in place on the amount that can be invested in SIPPs, wealth managers are increasingly recommending top performing VCTs to their clients. For example, Northern Venture Trust’s tax free yield is currently 7.7 per cent, which alone is very attractive and is also enhanced by the opportunity to reinvest dividends in new shares issued at net asset value; and get income tax relief on the new investment.”