Review: Stellar AIM IHT ISA

This Aim IHT ISA offer from Stellar Asset Management is managed by Manchester stockbroker Pilling & Co. It invests in AIM stocks which qualify for Business Property Relief. After two years the investment should become free of IHT. There is an optional insurance policy which offers protection against falls in value. 

  • Long-standing and experienced AIM IHT managers - the portfolio has been operating since 2008
  • 40-stock portfolio
  • Preference towards low volatility stocks
  • Insurance policy option can protect against market falls
  • £20,000 minimum

The manager

Stellar Asset Management specialises in tax efficient products. It identifies a market opportunity and then finds a capable asset manager to take advantage of it. Stellar was founded in 2007. This AIM IHT ISA offer is managed by Pilling & Co, a long-standing Manchester-based private client stockbroking firm. In total, Pilling has around £1 billion under management. There are five in Pilling’s investment team: Terry Applegate, Alistair Hodgson, Nigel Moore, Mike Tattersall and Sally Greenwood. The core of this team has worked together for over a decade. 

Target return and strategy 

There is no specific target return, however the team aims for a low volatility approach and would prefer slightly reduced performance if it means volatility and risk are lower. 

A 40-stock portfolio is typical; however larger clients may get slightly more holdings. Unusually, when a new client invests in the service the money is split equally between the stocks in the portfolio, therefore clients have slightly different portfolios. Over time as a stock becomes too dominant it is reduced and smaller holdings are topped up. As Mr Hodgson put it “all clients move in the same direction but at slightly different speeds”.

The managers have specific criteria. At the top of the list is a business they can understand. Current examples are Nichols, the makers of Vimto, and Wynnstay, the agricultural merchant. The philosophy is to keep it simple. If management cannot explain in a paragraph how a business makes money, the team doesn’t invest. They keep away from companies with a binary outcome: companies that will either massively succeed or fail, with no scenario in between.

For this reason, they avoid oil, mining and gas companies. Management having a stake in the business is important, as is a strong balance sheet. Free cash flow is also important; however, it doesn’t need to be paid as a dividend, it can be reinvested to aid future growth. 

Although the majority of the current portfolio companies are over £100 million in size, the team will look at companies £50 million in size and over. Liquidity is more important than size however and it’s important to be able to deal easily. 

Optional life insurance policy

Stellar offers an optional insurance policy. This policy will pay out any loss on death should the portfolio have fallen in value. The maximum amount insured is typically £250,000. An annual fee of 2.5% applies for the standard policy, which is subject to terms and conditions. These are based on age and health – on standard terms you must be under 80 and the policy expires when you reach 85. The insurance pay-out may be subject to IHT unless written in trust (Stellar has a draft trust document for this purpose). 

Performance

Discrete 12-month performance to 31 December (%)

  2008 2009 2010 2011 2012 2013 2014 2015 2016
Stellar AIM IHT Portfolio -34.6% 29.1% 18.9% -6.0% 18.2% 38.1% -1.9% 30.2% 9.5%
FTSE AIM All-Share -63.1% 76.1% 37.5% -24.9% 1.8% 20.3% -18.6% 4.2% 16.8%

Source: Stellar. Shows total return, inclusive of dividends, net of management fees and commission. Past performance is not a guide to the future. Note this is the model portfolio performance: every client's portfolio will be slightly different


Risks

Capital is at risk and you should not invest money you cannot afford to lose.

Eligibility for BPR is assessed at the date of death and will depend on the companies remaining qualifying. Remember, tax rules can change and the value of tax benefits depends on circumstances.

Liquidity of companies listed on AIM is a key risk. AIM can be a volatile market with little trading at certain points. Octopus is one of the largest managers in this market, which brings benefits in terms of company access but could also restrict trading ability.

Fees

There is an initial charge of 1%. The annual management charge is 1.75% plus VAT. An additional fee applies if the insurance policy is chosen. Dealing charges are 1%. There is also an annual ISA administration fee of 0.5% (£40 min, £140 max) and an exit fee of 1%. The minimum investment is £20,000.

Summary

Whilst the name Pilling & Co might not be widely known it has a long tradition in private client stockbroking. Indeed, investing in AIM companies for IHT purposes has been a feature of its portfolios since 2004. Whilst not a flashy offering, our view is that this AIM IHT ISA has quietly delivered with a sensible, pragmatic approach. The managers are happy giving up some performance if volatility and risk are potentially reduced. The insurance policy is an interesting addition.

This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aims to highlight investments we believe have merit, but investors should form their own view on any proposed investment and read the provider’s documents carefully. 


Read more about the Stellar AIM IHT ISA 

Stellar AIM IHT ISA

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