Last year was undeniably a strong one for the VCT world. In terms of share price performance both the Generalist sector and the VCT AIM Quoted sector were up, and income-wise the average yield across the VCT sector was 7.4%.
The big question is, will this success last into 2015? With global growth slowing, the future is uncertain.
Some of the big hitters of the VCT world gave their views on the outlook for the sector at a recent AIC briefing. NVM’s Tim Levett and Hargreave Hale’s Oliver Bedford, along with Foresight’s David Hughes, Albion’s Patrick Reeve, and Maven’s Bill Nixon, all gave reasons to be cheerful.
David Hughes believes that outperformance, stemming from strong profits and sales growth in the current stable low interest rate environment, will be a key feature of the VCT world this year. He said: “The relatively benign economic conditions…have been a helpful backdrop for high growth companies to deliver exceptional performance.”
Tim Levett predicted that healthy exits will be a feature of 2015. He argued that the low interest rates have made VCTs very attractive to investors, and the resulting consistent returns have been generated by exits at high money multiplies. He said that recently all the leading generalist VCTs have enjoyed a number of high-profile exits, and that this trend is likely to continue into this year.
Oliver Bedford gave his views on the likely state of the AIM market this new year, saying that although AIM had a bad year in 2014, returning -18%, the AIM VCTs posted an average return of 1.45%. He acknowledged that the events of the financial crisis cast a ‘long shadow’ over AIM and its VCTs – but that the sector is steadily recovering. He said: “Seven years have passed since those dark days and we feel the refined AIM VCT proposition that has since emerged is stronger and more robust. Many AIM VCTs now have mature portfolios generating strong risk adjusted returns.”
The general optimism was further supported by Patrick Reeve, who believes that 2015 will be a strong year for VCTs. He stated that the economic fundamentals support investment in growth companies, while private investors struggle to find homes for their cash which can deliver satisfactory returns – both of which make VCTs an important part of portfolio diversification.
Bill Nixon said that the market for capital is strong and deal flow is at healthy levels, a situation that is expected to endure. He also predicted that larger private equity houses will continue to be an important source of exits for VCT managers in 2015.
So, taking current general trends into account along with the opinions of these experts from within the sector, the outlook for VCTs in 2015 is decidedly rosy. Good news for those seeking a reliable source of tax-free income!