Review: British Smaller Companies VCTs

Every day a few people from our office visit Friska, our local coffee shop. We're there so often, the excellent staff jokes we should have shares in the company. Indeed, some of us indirectly do. Friska is a recent addition to the British Smaller Companies (BSC) VCTs’ portfolios.

At the time of the investment it had eight outlets in Bristol and Luton airport and was expected to turn over £4.6 million. YFM Equity Partners, the managers of the BSC VCTs, invested £3 million in total to help Friska expand. Just over a year later, it has opened two new sites in Manchester, with a third about to launch.

BSC2 – FriskaThe two sides of the BSC VCT's story

Whilst Friska is a window to the future and shows what new investments might look like, it doesn’t paint the full story.

British Smaller Companies VCTs are amongst the grandaddies of the VCT world. They have been around a long time (BSC since 1995 and BSC2 since 2001) and have built a loyal following amongst investors. They have delivered excellent performance and some notable exits, including Go Outdoors which produced a 37.2x return. Past performance is not a guide to the future. 

More than two thirds of the investments across the two VCTs were made prior to 2015, so under less restrictive rules. They tend to be in more mature and often profitable companies, acquired as part of a management buyout. One example is ACC Aviation, a niche aircraft leasing business founded in 2002 with a turnover of £40 million. 

Many of these old-style deals include a loan element, so loan repayments could provide the VCTs with a relatively stable source of income, which can help support dividend payments whilst the newer companies have a chance to grow. 

Impressive dividend track record

BSC VCT has paid an average annual dividend of 10.5p over the last five years to March 2018, equivalent to an effective annual yield of 14.6%. BSC VCT 2 has been less prolific, with an average dividend of 4p (6.8% yield) to June 2018. Please note dividends are not guaranteed. As newer growth capital investments take over from old-style ones, dividends could be lumpier.

Source: YFM Equity Partners. Past performance is not a guide to the future. Dividends are variable and not guaranteed. Chart shows Net Asset Value and cumulative dividends paid to 31 Mar (excluding 2018, BSC) and 31 Dec (excluding 2018, BSC2) each year, pence per share.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change and benefits depend on circumstances.

VCTs can now only invest new money in growth capital deals. Management buyouts, replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.

What to consider next

Please visit the offer page using the link below to download the provider documents, read more (including risks and charges) and apply online.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

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