Review: Octopus AIM VCT and Octopus AIM VCT 2

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

This is a fundraise of up to £20 million (with a £10 million overallotment facility) across the Octopus AIM VCT and Octopus AIM VCT 2 (together the Octopus AIM VCTs). Investors will have exposure to a well established portfolio of maturing and profitable AIM companies plus earlier-stage businesses from newer investments. These are two of the longest-running and largest AIM VCTs, benefiting from a large and well resourced investment team. 


  • Access to a maturing portfolio of more than 70 AIM companies
  • Well resourced and highly experienced team 
  • 5% annual dividend target (variable, not guaranteed)
  • Consistent and long-term dividend history
  • Octopus is the UK’s largest VCT provider
  • 0.25% annual rebate through Wealth Club for three years
  • Minimum investment £5,000

Octopus AIM VCTs - No obligation reservation

The offer

Octopus AIM VCT launched in 1998 (originally as Close AIM VCT plc). Octopus AIM VCT 2 was launched in 2006 (originally as Close IHT AIM VCT plc). Investors can choose one or the other or split their investment between them. Both invest alongside each other and hold many of the same investments in similar proportions.

Investors could benefit from a diverse portfolio of more than 70 companies – many established – across the two VCTs. 

Combined, the VCTs have over £221 million of net assets (Aug 2018). The first VCT has 76 holdings and the second 75. Over 80% of the equity of the portfolio is invested in profitable companies; around 60% of the companies held are profitable.

The manager

The AIM VCTs are run by the Octopus UK Smaller Companies team, which manages more than £1.6 billion in AIM investments across all Octopus products. 

As the name suggests, smaller company investing takes up 100% of the team’s time.

Between them, the eight members of the team have industry experience of more than 100 years. This gives them good deal flow and the resource (perhaps unrivalled in the industry) to scour AIM for what they consider to be the best investments. There are few AIM deals the team doesn’t see.

The team includes Richard Power and Kate Tidbury. The team is not reliant on one individual and conducts more than 500 meetings a year with investee companies or prospective ones. It will look at a whole range of companies with a market capitalisation ranging from £5 million to £100 million at the time of investment.

Target dividend

Octopus AIM VCT seeks to pay annual dividends of 5p per share or a 5% yield, whichever is greater. This will usually be made in two instalments each year.

Octopus AIM VCT 2 seeks to pay 3.6p per share annually or a 5% yield, whichever is greater. 

Dividends are variable and not guaranteed. Capital growth is also an aim of both VCTs, although there is no specific target.

Investment strategy

The managers of the VCTs will consider all qualifying sectors for new investments. When investing new money, Octopus is ideally looking for businesses at their last round of funding before reaching self-sustainability or profitability, with enough investment headroom for Octopus to provide any follow-on investment needed to become self-sustaining. 

Whilst a new investee company doesn’t need to be profitable at the time of the investment, the team expects it to be profitable within two years. The biotech sector was key for new deals in recent years, but this isn’t a biotech-focused fund, where outcomes tend to be binary. The managers treat the biotech sector with caution and would look for a healthcare angle when investing new money.

The team is willing to hold investments for the long term, providing it sees the business has potential to grow. Some of the investee companies have been held in the portfolios for more than a decade.

The top ten sectors of the two VCTs are shown below: as the graph shows, the profile is very similar.

Example holdings

Octopus AIM VCTs – BreedonBreedon 

This is one of the largest holdings in both VCTs. 

It is the UK’s largest independent construction materials group and listed on AIM in 2010. 

It operates two cement plants and around 80 quarries, 40 asphalt plants, 170 ready-mixed concrete and mortar plants, nine concrete and clay products plants, four contract surfacing businesses, six import/export terminals and two slate production facilities. The Group employs nearly 3,000 people and has nearly 900 million tonnes of mineral reserves and resources.

The company was founded in Breedon on the Hill in Leicestershire, where stone has been quarried since the late 1800s. 

Breedon recently completed the acquisition of Lagan group, based in Ireland. Octopus likes the management team and believes this is a well-run business partly because the management team pays attention to detail in matters like sales management, health and safety and keeping sites tidy. The company is not yet dividend paying as capital is reinvested to grow the business. The Lagan deal is an example of this, as is the 2016 acquisition of Hope, doubling the size of the business and providing a coveted cement railhead into London.

Octopus AIM VCTs – Yu GroupYü Group 

This is another core holding in both VCTs. 

Yü Group, which trades as Yü Energy, is the UK’s fastest-growing energy supplier. The entrepreneur founder started the company in 2012 to take on the “Big Six” utility suppliers which control 85% of the SMEs energy market. 

The idea is simple: help SMEs manage their energy with great service and transparency. Practically this means each customer has a personal account manager and the call centre works on a three-ring guarantee, with an average query resolution time of 90 seconds. Yü Energy provides flexible contracts and payment terms, and the billing and account platform has been designed to be as simple as possible.

Octopus Investments invested a total of £1.1 million in 2016 across the AIM VCTs. According to the latest figures, the two holdings are now worth a total of £5.2 million (Jun 2018, unaudited, at bid price). 

The founder is still the major shareholder. 

Octopus AIM VCTs – FaronFaron Pharmaceuticals Company

There will inevitably be some deals that don’t work out. We asked the fund manager for an example. Kate Tidbury cites the case of Faron Pharmaceuticals Company.

The company had been working on a drug, Traumakine, for the treatment of acute respiratory distress syndrome (ARDS). This condition – basically an obstructed airway – typically occurs in patients admitted to the ICU or those who have suffered traumatic injuries. A large proportion of patients on ICU wards die to due to complications of ARDS as available treatments are relatively ineffective. 

Faron Pharmaceuticals first floated on AIM in November 2015. Octopus didn’t invest at IPO, but instead during its phase 3 drug trial. 

During human-trials, the drug appeared to increase survival in patients with ARDS by 70%. However, an independent audit in May 2018 concluded this effect was due to the placebo effect. 

Exit strategy

As with other investment decisions, the decision to sell is a team one. This may be on a partial exit basis, as the share price of an investee firm moves, or it may be because the team feels the business has run its course. They will monitor the VCTs’ holdings and where any one investment becomes too large, around 6%, they will “take the top” off and liquidate investments, to maintain balance.


The share price total return of the two VCTs, plus the FTSE All Share and FTSE AIM All Share, is shown below. 

Source: Octopus Investments, to 31 March 2018. Total return shows net asset value plus dividends. Past performance is not a guide to the future.

Dividend history

Around 60% of the portfolio is invested in companies that are already paying dividends. 

The history of dividends is shown below – note past performance is not a guide to the future. The spike in the summer of 2015 was due to the payment of a special dividend following the take-over of Advanced Computer Software by a U.S. private equity firm.

Source: Octopus investments. Please note, dividends are not guaranteed and past performance is not a guide to the future.


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.

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 5.5%
Wealth Club initial saving 2.5%
Loyalty discount for existing shareholders 1%
Net initial charge through Wealth Club (new investors) 3%
Net initial charge through Wealth Club (existing shareholders) 2%
Annual charge 2%
Annual rebate (for three years) 0.25%
Performance fee nil

More detail on the charges

Annual rebate when you invest through Wealth Club

The AIM VCTs include 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 0.25% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Share buy-backs

The VCTs operate 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.

Dividend Investment Scheme (DRIS)

There is a Dividend Investment Scheme which allows shareholders to reinvest future cash dividend payments in new shares, if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit.

Our view

These are large and well established AIM VCTs. Octopus Investments’ team is the largest manager of AIM investments across VCTs and other tax-efficient investments. The team’s size in this market gives it early access to potential new qualifying deals; there are few AIM opportunities the team doesn’t see. These VCTs were created under older and less restrictive rules, allowing investors the potential to benefit from a profitable and maturing AIM portfolio as well as newer AIM investments.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision 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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