Review - Proven Growth & Income VCT

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.

Proven Growth & Income is a well-established VCT with over £74 million of assets and 42 companies. Over the last year, more than £15 million has been invested in a mix of new and existing investments. New investors will benefit from this already diverse portfolio as well as new investments.

Highlights

  • Annual dividend target of 5% (variable and not guaranteed). It exceeded this in the past three years (average 6.6%) although remember past performance is not a guide to the future
  • Invests in high-growth opportunities
  • Media sector investment specialists 
  • Diverse portfolio including Watchfinder, Chargemaster and Maplin

The manager

Beringea LLP has managed Proven Growth & Income since inception. In our view it can be categorised as a media and digital specialist with expertise in other areas too. Recent successes include the partial sale of fashion jeweller Monica Vinader (2016) for 5.2 x cost, and the sale of the whole holding in digital media agency Steak Media for 5.6 x cost earlier on in 2011. 

These are just two examples. Beringea has continued to identify high-quality opportunities - indeed, since February 2016 it had five total disposals. 

Currently it manages £160 million across three VCTs. The investment team is led by CIO Karen McCormick and MD Stuart Veale. In total there are 12 professionals in the team.

Target Return and strategy

This VCT looks to pay an annual dividend of 5% (variable and not guaranteed) of net asset value and over the past three years has averaged 6.6%. Please remember past performance is not a guide to the future. Despite the consistency in the dividend this VCT invests unashamedly in high-growth opportunities. Beringea looks for companies with rapid growth potential that can be exploited. 

As mentioned above the emphasis is predominantly on digital and media-related businesses, however that is not the only focus. Beringea’s main consideration is finding a great management team, as it believes this has most influence on the long-term value of the business. 

Of interest currently are software companies that specialise in healthcare. Beringea has looked at the sector for some years, however it believes it’s only recently become truly investable. 

Another sector of interest is traditional businesses that move into the digital age, especially consumer companies. Two currently in the portfolio that have performed very well are Monica Vinader, a fashion jewellery boutique with a strong online presence, and Watchfinder, an online reseller of high-end watches. Both received investment to help fund further growth. The investment in Monica Vinader has been partially realised giving a very handsome return.

In total Beringea has invested approximately £46 million over the last year, in a mix of new investments, existing portfolio companies and acquisition vehicles across its two VCTs, Proven VCT and Proven Growth and Income. The latter invested over £7 million in the last financial year in five new companies, including Thread, an online personal shopper for men, and Poq, an app commerce platform with clients such as Liberty, House of Fraser and Holland & Barrett.

Despite the media and digital focus, the portfolio is well spread with a mix of business software companies, retail businesses, pure media and healthcare. 

Portfolio sector split

Wealth Club - Proven Growth & Income sector split

Exit strategy

The team looks to invest where there is an obvious exit strategy within three to four years. Many of its past exits have been trade sales. Beringea has been adept at realising its investments in a timely manner. In 2016, seven companies have been sold realising profits of between 1.8 x cost and 5.2 x cost. 

Risks

Buying into a fully invested portfolio of higher-growth companies means you are more susceptible to valuation fluctuations – don’t forget earlier-stage companies often need additional funding. This risk is mitigated with the large and diverse portfolio of this VCT. In addition, PGI has sufficient cash to make follow on investments if needed. Another factor to take into account is the high percentage of media, digital and technology investments in the portfolio – potentially increasing the risk and return. 

Fees

Beringea receives a 2% annual management fee and the total running costs of the VCT are capped at 3.6%. In the last financial year, the running costs were 2.7% and are expected to fall to 2.5% with the introduction of the new funds. Beringea receives an admin fee of £49,550 plus VAT and a performance fee equal to 20% of the outperformance of a hurdle, which rises annually at a rate of 1% over the official Bank of England base rate. Beringea might also receive deal arrangement and monitoring fees. New investors receive an early bird discount of 1%, whilst existing investors receive an early bird discount of 2% if investing prior to 13 January 2017. The initial charge is 5.5% prior to any Wealth Club discount.

Summary

Despite a quiet year by its standards, Beringea, manager of Proven Growth & Income VCT has continued making and successfully realising investments. The investment team has been expanded with the hire of three new professionals, strengthening an already excellent team. Digital and media related companies has been its forte and although this is clearly a higher risk area, returns over the long term have justified the exposure to this higher risk, higher reward sector.

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.

Photo credit: Wayaiu

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Proven Growth & Income VCT

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