Review: Hargreave Hale AIM VCT

This latest offer for the Hargreave Hale AIM VCT plc seeks to raise up to £30 million (£20 million with an over-allotment facility of up to £10 million).

Hargreave Hale specialises in smaller companies investing. As well as its AIM VCTs, it is well known for its flagship fund Marlborough Special Situations, co-managed by Giles Hargreave. Mr Hargreave also co-manages the AIM VCT with Oliver Bedford. 

Highlights

  • Managed by one of the UK's best-resourced small and micro-cap investment teams
  • Dividend target of 5% of NAV a year, paid twice a year. Dividends are not guaranteed
  • Ongoing expense ratios of around 2% per year, one of the lowest in the VCT industry
  • Diverse portfolio of 83 companies – mainly AIM-listed firms but also some unquoted businesses
  • Bias towards IT, healthcare and consumer discretionary businesses
  • Minimum investment £5,000
  • 0.10% annual rebate through Wealth Club, paid for three years
  • Early bird discount until 9 November 2018, or the first £6 million raised
  • You can apply online

The manager

Hargreave Hale is a well established fund manager that specialises in smaller UK companies. It has been managing AIM VCTs since 2004. It also manages several unit trusts marketed under the Marlborough brand, including the well known Special Situations Fund, the UK Micro-Cap Growth Fund and the Multi-Cap Income Fund. It has £6 billion under management.

In 2017 Hargreave Hale was acquired by Canaccord Genuity Wealth Management, the UK arm of Canaccord Genuity, a global investment group headquartered in Canada. In April 2018 the business adopted the brand of CGWM (UK). In total Canacord manages £26.9 billion (June 2018).

In March 2018 the Hargreave Hale AIM VCT 1 plc merged with the Hargreave Hale AIM VCT 2 to form the Hargreave Hale AIM VCT. 

Investment strategy

The Hargreave Hale AIM VCT looks to invest in a good spread of growth companies, mainly on AIM but also some that are unquoted. 

Oliver Bedford believes AIM is a misunderstood market. It is also a large one – with around 1,000 companies listed, many fast-growing dynamic companies as well as poorer-quality ones – and often overlooked by investment analysts. In his opinion, that makes for an inefficient market, which can work in favour of active investors, providing they know where to look. 

Hargreave Hale has a 16-strong investment team focused entirely on small caps, making it one of the largest UK small cap teams. The team holds around 1,500 meetings a year. This provides a level of insight that cannot be matched by desktop research alone. 

Current portfolio overview

The portfolio is diversified across 74 AIM-listed companies and 9 unquoted companies (as at 31 March 2018), with a small percentage in cash. The VCT will also strategically deploy money in the Marlborough Special Situations Fund, pending investment. This maintains an investor’s exposure to UK smaller companies, as an alternative to cash.

The VCT is sector agnostic: every firm is assessed on its individual merits. Mr Bedford’s view is that the characteristics that define a successful company are the same whether it is listed on AIM, on the main market or it is a private company. What is important is the quality of the management team, its intellectual property, the firm’s pricing power and growth in its own market.

Mr Bedford’s team seeks companies where it knows the management and may have backed them to deliver previously, and they seek to buy and hold. Hargreave Hale’s view is that good stocks are hard to find and so they should be held for as long as possible, to allow the portfolio to develop a core collection of maturing companies. 

Examples of portfolio companies

Hargreave Hale AIM VCT – ZOO Digital GroupZOO Digital Group plc – AIM listed

ZOO Digital started in 2001 producing software used by companies in DVD and Blu-ray production and in 2006 launched its first localisation service.

This proved a fortunate move. Whilst demand for its DVD-based technology ‘fell off a cliff’ a few years ago, in the words of CEO Stuart Green, the company’s localisation services have thrived thanks to the proliferation of digital content.

Today ZOO Digital works with the biggest names in global entertainment and media, including the 'Big Six' Hollywood studios, leading online retailers, the world's largest broadcasters, independent distributors and brand agencies. It provides technology and services to subtitle and dub TV series and feature films in any language and prepare them for sale with all major online platforms such as Amazon, iTunes, Google and Hulu. 

Hargreave Hale invested £2.7 million in April 2017, becoming the third largest shareholder – CEO Stuart Green is the largest. The latest valuation is £5.2 million, making the company the second largest holding and the biggest positive contributor to the VCT’s NAV performance over the six months to March 2018. The growth is supported by reported strong trading within ZOO Digital’s last financial year and is not guaranteed to continue in future.  

Hargreave Hale AIM VCT – GoustoGousto (SCA Investments) – unquoted

Gousto was the first subscription-based meal-kit provider. 

The company started in 2012 and it is an example of the right idea at the right time. The online grocery market was just starting and the outlook was promising. At the same time, a growing number of people wanted to eat more healthily but didn’t have the time or ability to cook nutritious food from scratch. 

Gousto provides an answer to that. It delivers fresh – usually organic – ingredients straight to someone’s door, alongside easy-to-follow recipes. Because the ingredients are supplied in the right quantity, there is also less waste. There are 30 weekly recipes across 10 different ranges, from 10-minute meals to plant-based and gluten free.

Gousto effectively created a new market, thanks to the support of a team of early investors including Angel CoFund, MMC Ventures, Unilever Ventures and BGF Ventures. Today it delivers over one million meals monthly and its revenues doubled in 2017. It aims to serve 400 million nutritious home-cooked meals by 2025 and extend its 0% household food waste commitment to three million more homes. The meal kit industry is expected to generate $10 billion (£7.2 billion) globally by 2020. 

Hargreave Hale invested £2.5 million in July 2017. The latest valuation is £3 million, making the company the third largest holding (March 2018). 

Performance and dividends

The VCT aims to pay a dividend of 5% of the year-end net asset value twice a year. This is variable and not guaranteed; past performance is not a guide to the future.

Source: Hargreave Hale, to July 2018. Past performance is not a guide to the future. Hargreave Hale AIM VCT has announced a special dividend of 1p per share due to be paid on 24 October 2018.
Source: Hargreave Hale, to July 2018. Based on a starting NAV of 64.07p, July 2013, compared with the FTSE AIM All Share Index. Total returns based on performance of the NAV and dividends paid. Past performance is not a guide to the future.

Risks

This is a high-risk investment. VCTs are not suitable for everyone. Investors should not invest money they cannot afford to lose. Please remember your capital is at risk.

Tax benefits depend on individual circumstances and tax rules can change. 

Although AIM stocks may be easier to sell than unlisted shares, they must still be regarded as illiquid. AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-listed companies is often wider than fully listed ones. 

Fees and charges

A summary of the fees and charges is shown below. The net initial charge shown includes the Wealth Club discount plus any early bird saving.

Full initial charge 3.5%
Wealth Club initial saving 2%
Loyalty discount for existing shareholders -
Net initial charge through Wealth Club 1.5%
Annual charge 1.7% from April 2019
Annual rebate (for three years) 0.10%
Performance fee 20%

More detail on the charges

Share buy-backs

The VCT operates a share buy-back facility at a discount to net asset value. This is subject to availability and Board and shareholder approval. Please see the offer documents for details.

Deadlines

Unless the offer is fully subscribed before these dates, the following deadlines apply:

  • Deadline for next share allotment: 25 October 2018
  • Early bird discount: 9 November 2018 or the first £6 million raised if earlier
  • Deadline for shares allotted in the 2018/19 tax year: 5 April 2019

Annual rebate when you invest through Wealth Club

The Hargreave Hale AIM VCT includes an annual rebate for Wealth Club investors, payable for the first three years. 

This is a rebate of our renewal commission and should be equivalent to 0.10% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Our view

AIM VCTs are often an afterthought when choosing where to invest in VCTs. However, Oliver Bedford makes a persuasive case for investing in AIM. The Hargreave Hale team is one of the most experienced and capable smaller company fund management teams with an excellent long-term record. This AIM VCT is one to consider, in our view.

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.

Hargreave Hale AIM VCT

Offer now open

Read more and apply online