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And as we noted earlier, advisers should
be clear on how and where VCTs invest
their cash and near cash.
There’s also another point about the
discount to the NAV. If a fund used its
cash to maintain the discount at an
acceptable level (say, 5%) that would
make it very hard to identify a run of
redemptions on the fund. We think (but
we can’t evidence this at the moment)
that would mean that the discount
would fall very steeply once the fund
suspended its buyback policy. Again,
this point is not a showstopper, but
it’s another reason to be clear that the
investment must be made for the long
term, and should be considered an
illiquid investment.
PORTFOLIO VOLATILITY
Of course the portfolio will experience
some volatility. Volatility in the share
price will be driven by supply and
demand for the shares. Volatility in
the NAV will be driven by acquisitions,
realisations and the timing of valuations.
Therefore both the share price and
the NAV can be quite erratic. It’s worth
considering this, if only for a moment:
VCTs are subject to two sources of
volatility.
AIM quoted VCTs can be very volatile,
and at least some of that volatility will
simply be a reflection of the volatility on
the AIMmarket itself. Generalist VCTs
tend to be less volatile as their underlying
investments are valued less frequently.
AVERAGE DISCOUNT TO NAV
(2008- 2015)
PORTFOLIO VOLATILITY
(2010 - 2015)
AIM VS. AIM QUOTED VCTs
(11/2005 - 11/2015)
Source: FE Analytics
“A good Generalist VCT looks for companies that thrive in industries undergoing fundamental
change - often driven by new technology or consumer behaviour”
Shane Elliot, Beringea LLP
AIM Quoted VCT Sector mirrors the volatility on AIM itself
VCT AIM Quoted
AIM
Source: Morningstar and the AIC
Source: FE Analytics
This is a Specialist VCT investing in a high risk sector
0
-5%
-10%
-15%
-20%
-25%
-30%
VCT AIM Discount Average
VCT Generalist Discount Average
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Aug 10
Aug 11
Aug 12
Aug 13
Aug 14
Aug 15
40%
-40%
-60%
-80%
Nov 05 Nov 06 Nov 07 Nov 08 Nov 09 Nov 10 Nov 11 Nov 12 Nov 13 Nov 14 Nov 15
20%
-20%
0%