Amati AIM VCT
Amati AIM VCT invests predominantly in AIM stocks and offers a mixed portfolio of mature, revenue-generating companies as well as earlier-stage businesses with the potential for significant growth. The VCT favours the healthcare and technology sectors, both of which have fared comparatively well in the current environment, although past performance is not a guide to the future.
The VCT is managed by Amati Global Investors, a specialist fund management business focused exclusively on UK smaller companies with £1.3 billion under management. The VCT has a track record of delivering attractive returns to investors and has paid steady dividends – dividends are variable and not guaranteed.
Over the past 10 years to 30 June 2021, Amati AIM VCT produced a NAV total return of 474.2%, making it the best-performing VCT over the period: note this is an exceptional return driven in part by the recovery following the European sovereign debt crisis in 2011. Past performance is not a guide to the future.
The VCT has net assets of £246.6 million (30 June 2021). The current offer is seeking to raise up to £40 million. Initially, subscriptions will be accepted for the 2021-22 tax year only. There is an overallotment facility to raise a further £25 million if a sufficient number of qualifying investments have been made from the initial proceeds of this offer.
The current offer will be open to both new investors and existing shareholders from 30 July 2021. However, priority will be given to valid applications from existing shareholders received by 9am on Wednesday, 4 August 2021.
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- Mature AIM-focused VCT
- Target dividend of 5%-6% of NAV – dividends are variable and not guaranteed
- Diversified portfolio of 71 holdings, plus exposure to TB Amati UK Smaller Companies fund
- Bias towards healthcare and technology sectors
- No performance fee
- Strong longer-term track record
- Minimum investment £4,000 – online applications only
Amati Global Investors, based in Edinburgh, is a specialist smaller-companies fund manager. It was founded in 2010 as a management buyout of Noble Fund Managers. The VCT's fund management team consists of five individuals: Paul Jourdan, David Stevenson, Anna Macdonald, Scott McKenzie, and Gareth Blades.
Paul Jourdan, Amati’s CEO and co-founder, has 23 years’ fund management experience. David Stevenson joined Amati in 2012 after seven years at investment boutique Cartesian Capital, where he was a co-founding partner. Prior to that, David spent 13 years at SVM Asset Management.
Mrs Macdonald joined Amati in 2018 to replace Douglas Lawson, one of the founders of Amati, who left the team to concentrate on running a data analytics company he co-founded the previous year. She previously led the research department of Adam & Company as well as its AIM IHT portfolio service.
Dr Blades joined Amati in 2019. An Oxbridge graduate, Dr Blades is a specialist analyst in the healthcare sector. He previously worked in corporate finance at PharmaVentures as well as the spinout division of Edinburgh University. His experience should help fortify the VCT’s position within the healthcare sector and expand beyond its current limits.
The quartet were joined by Scott McKenzie in April 2021. Mr McKenzie has 25 years’ experience managing UK equity portfolios. Prior to joining Amati, Scott was head of research at Saracen Fund Managers.
Amati is majority-owned by its staff although Mattioli Woods, an AIM-quoted wealth manager, took a 49% stake in February 2017. Amati manages £1.3 billion (June 2021) between the VCT and its two other services, TB Amati UK Smaller Companies Fund and Amati AIM IHT Portfolio.
Amati primarily targets investments it is happy to hold for five years or longer. It seeks to invest in businesses with the following characteristics:
- An experienced management team
- Valuable intellectual property with a proven ability to commercialise it
- A competitive advantage
- The potential to grow quickly, preferably internationally
Each company will be assessed for a number of ‘red flags’ or weaknesses which can include significant liabilities, poor profit or cash conversion and aggressive accounting. Importantly, businesses will need to be well funded, Amati does not invest in companies with market capitalisations below £15 million or those it deems inadequately financed.
The VCT operates a team-based investment approach, preferring collaborative and consensus views to generate ideas and challenge positions. The team seeks out opportunities regardless of market conditions. It does not favour one valuation technique to the exclusion of others.
The strict investment criteria, combined with VCT rules, means an AIM VCT’s ‘investable universe’ is typically reliant on qualifying companies raising fresh capital. The ebb and flow of companies coming to AIM to raise funds may therefore affect the breadth of investment opportunities available to the VCT. That said, 2021 appears so far to be a bumper year for AIM admissions: in the first six months to June 2021, 30 new UK companies were admitted to AIM, more than in the whole of 2020, although there is no guarantee this trend will continue.
Throughout the crisis, Amati has remained committed to its strategy of ‘running the winners’ and has continued to back its strongest performers. The team has focused on supporting its existing portfolio, particularly those companies it believes can make the most of the difficult economic circumstances, such as businesses within the healthcare sector.
While Amati experienced a dip in deal opportunities towards the end of 2019 (as a result of Brexit and election uncertainties), 2020 delivered in line with the team’s expectations. In the period February 2020 to January 2021 the VCT deployed £16 million into 12 deals, split between seven follow-on deals and five new investments.
The VCT showed strong performance through 2020, achieving a NAV total return of 37.2%. This momentum continued into the first half of 2021, with a NAV total return of 5.8%. Past performance is not a guide to the future.
Current portfolio overview
The VCT has a diversified portfolio of 71 holdings with a net asset value of £246.6 million (June 2021).
A good proportion of the portfolio is held in mature, revenue-generating companies. 21.1% is invested in companies with market capitalisations of £1 billion or greater. The top ten investments currently represent 53.8% of the VCT’s value.
For new investments, Amati continues to favour healthcare and early technology companies, currently the two largest sectors within the portfolio (representing 35.6% and 24.1% respectively – June 2021). However, it will not rule out other sectors if it sees an attractive opportunity.
The VCT will also occasionally invest in non-qualifying holdings to help provide diversification, liquidity and access to potentially higher dividend yields. The VCT has one non-qualifying holding at present, the TB Amati UK Smaller Companies Fund, which is currently the second-largest holding within the VCT, representing 6.9% of total assets (June 2021).
Source: Amati, as at 30 June 2021.
Source: Amati, as at 30 June 2021.
Examples of portfolio companies
Polarean Imaging Plc
Historically, MRI scans on lung health could only provide limited information. Polarean has looked to address this by developing a drug-device combination that provides a stronger signal.
Patients inhale polarised Xenon, a harmless inert gas. The hyperpolarised gas improves the image signal by a factor of 100,000, allowing clinicians to identify lung structure and ventilation patterns more effectively. This improved visibility could be vital for early disease detection as well as progression monitoring.
The company has continued to make good progress towards commercialisation. It successfully completed its Phase III trial and lodged its pre-new drug application with the US Food and Drug Administration (“FDA”) in October 2020. The FDA is expected to make a decision towards the end of 2021.
Polarean believes its technology could become increasingly important in analysing and understanding how pulmonary function can be affected by Covid-19. It is currently working on a study with Oxford University to assess the respiratory impact of Covid-19.
The VCT initially invested £1.9 million into the company. It has since participated in an £8.4 million funding round, investing a further £2 million. Polarean represents 9.7% of the portfolio and is the largest holding (June 2021).
Frontier Developments is the VCT’s second-largest qualifying holding, representing 5.8% of the portfolio (June 2021).
The company, founded by David Braben, is one of the UK’s leading independent game developers. Frontier began life as a “work-for-hire” studio, designing and releasing games for well known publishers such as Atari and Microsoft. While this was a relatively low margin strategy, it helped establish Frontier in the industry, allowing the studio to transition to a self-publishing model.
Without the oversight of a larger publisher, Frontier has been free to develop its own IP. The company looks to target underserved genres, as it believes this could allow it to dominate a sector if it can develop an appealing game. The aim, as Braben put it “is to be a Rolls-Royce, not a Ford”, releasing quality games that the company continues to support with new content.
Amati invested in the company two months before it floated on AIM in 2013. At the time, video game companies were not overly popular due to a number of previous market failures. However, the investment team decided to back Frontier due to its ability to transition from a game developer into a publisher.
Frontier benefited from increased demand throughout lockdown. In a recent trading update, the company announced it expects to generate record annual revenues of £91 million in FY 2021, a 19.6% rise on FY 2020. Past performance is not a guide to the future.
Saietta Group is an Oxford-based engineering company founded in 2014 by Lawrence Marazzi. The business aims to produce a motor to be used in electric vehicles. Unlike conventional electric motors, which are cylindrical in shape, Saietta’s motor has a disc-like shape so it can fit inside each wheel rim, leading to a more efficient transfer of power. Saietta aims to transform the light motorbike market in Asia, where the business is in discussions with leading motorbike manufacturers. In India alone, 20 million heavily polluting light motorbikes are sold every year.
The VCT first invested in the business in April 2021 in the form of pre-IPO equity and a convertible loan. In July 2021, the business raised £37.5 million through its AIM IPO, and achieved a market capitalisation of £102.1 million. Past performance is not a guide to the future.
As is to be expected, not all investments work out. appScatter is an example. An app distribution and management platform, appScatter integrates with 50 of the world’s top app stores. The company’s technology can automatically determine suitable stores depending on an individual app’s specifications. The entire process is automated from registration to submission.
Amati originally invested £1.2 million at IPO in 2017. However, it exited its position this year after the company failed to live up to expectations. The investment team will exit any holding where the position is not considered to be recoverable in the short term, particularly for sub-scale investments.
Performance and dividends
The AIM market has been turbulent in recent years and Amati AIM VCT has not been immune to this volatility, as investors might expect.
2020 was a particularly challenging year. The VCT started the year with a Net Asset Value per share of 155.67p. Following the onset of the pandemic, the trust saw its NAV fall to a low of 109.12p on 19th March 2020.
However, aided in part by a very strong performance from a select number of quoted holdings, particularly Frontier Developments, Polarean Imaging, Ilika and Maxcyte, the VCT has recovered strongly, ending the year with a NAV per share of 203.75p after paying 7.75p of dividends.
Over the previous ten years to June 2021, Amati AIM VCT has produced a NAV total return of 474.2%. Past performance is not a guide to the future; dividends are variable and not guaranteed.
The VCT targets an annual dividend of between 5% to 6% of NAV. In the twelve months to June 2021, the VCT paid 10.5p in dividends. Over the past five years, the average annual dividend payment has been 8.25p.
Source: Morningstar, as at 30 June 2021. Performance is calculated on a NAV to NAV basis, net of fees, assuming dividends are reinvested, excluding tax reliefs. Past performance is no guide to the future. Dividends are variable and not guaranteed.
Source: Amati. Dividends paid in calendar year from 31 Dec 2015 to 30 Jun 2021. Dividends are not guaranteed and past performance is not a guide to the future.
Charges and savings
A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details.
|Full initial charge||3%|
|Early bird discount||—|
|Wealth Club initial saving||2%|
|Existing shareholder discount||—|
|Net initial charge through Wealth Club (new investors)||1%|
|Net initial charge through Wealth Club (existing shareholders)||1%|
|Annual management charge||1.75%|
|Annual administration charge||See offer documents|
|Annual rebate from Wealth Club||—|
More detail on the charges
- First allotment: on or around 9 August 2021
- Final closing date for application in 2021-22 tax year: 12pm on 4 April 2022.
The offer will close earlier than indicated if the maximum subscriptions are received. It may also be extended at the discretion of the Directors.
Dividend Reinvestment Scheme (DRIS)
There is a Dividend Reinvestment Scheme that 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.
Share buyback policy
Amati offers a share buy-back policy. The company may repurchase shares shareholders wish to sell. Please note, any purchase is at the discretion of the board and is subject to the company having the necessary cash resources and distributable reserves available for the purchase.
In the 12 months to 31 January 2021, 2,039,377 shares in the Company were bought back for an aggregate consideration of £3.2 million at an average price of 155p per share, representing 1.8% of the shares in issue at 31 January 2021. The average discount was 8.52%.
VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.
The chart shows the five-year discount to net asset value history of Amati AIM VCT based on the closing share price at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCT’s share buyback facility, although this is not guaranteed.
Source: Morningstar, 30 June 2021. Discount is the closing share price at the end of each month, divided by the latest net asset value at the time. Rolling 12 month average is this figure averaged over the year.
Annual rebate when you invest through Wealth Club
There is no annual rebate for Wealth Club investors.
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.
Unlike VCTs investing in unquoted companies, AIM VCTs have a more natural exit route for shares as they are listed. However, dealing in large volumes of shares could be difficult. The size of the VCT could make this more of a problem.
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 those listed on the main market.
Amati is a well known, highly regarded fund manager with a good track record of investing in smaller quoted businesses in the UK.
The trust has a diversified portfolio of 71 holdings across a range of sectors with a bias towards healthcare and technology, which together account for just over 50% of the portfolio.
Over the last five years, the trust has performed strongly; notwithstanding the volatility of AIM, it has become the top-performing VCT over the past five and ten years to June 2021. This is thanks largely to several successful stock picks, and Amati’s focus on growth companies, particularly within the technology and healthcare sectors. Remember, past performance is not a guide to the future.
As an investment house, Amati Global Investors has also experienced significant growth over the last 12 months. Its assets under management have more than doubled, enabling further expansion of the fund management team with the appointment of Scott McKenzie, an experienced senior fund manager.
In our view, Amati AIM VCT is a high-quality offering for experienced investors comfortable with the volatility of the AIM market.
Read important documents and apply
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.
- Target dividend
- 5%–6% of NAV
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- £40.0 million sought
- 9 Aug 2021 for first allotment