Octopus AIM VCTs
Octopus AIM VCT and Octopus AIM VCT 2 – together the Octopus AIM VCTs – are two of the longest-running AIM VCTs, benefiting from a large and well resourced investment team.
The two VCTs provide exposure to an established portfolio of largely profitable AIM companies alongside earlier-stage businesses from newer investments. Over 70% of the equity of the portfolio is invested in profitable companies, with 42% invested in companies paying dividends (as at July 2020, based on the companies’ last financial year).
Both VCTs have to date a consistent dividend track record. Over the last five calendar years, Octopus AIM VCT has paid out 34.3p per share in dividends, equivalent to 32% of its net asset value. Octopus AIM VCT 2 has paid 26.4p per share, equivalent to 33% of its net asset value. Please note past performance is no guide to the future.
The current offer seeks to raise £20 million, with a £10 million overallotment facility.
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- Access to a portfolio of around 80 AIM companies
- Well resourced and highly experienced team – one of the best-resourced for AIM
- 5% annual dividend target (variable, not guaranteed)
- Consistent and long-term dividend history (past performance is not a guide to the future)
- Octopus is the UK’s largest VCT provider
- Split the investment 60/40 between the two, or place 100% of your investment into either VCT
- Available for this tax year (2020/21) and next tax year (2021/22)
- Minimum investment £5,000, you can apply online
The Octopus AIM VCTs are managed by the Octopus Quoted Smaller Companies team, which includes some of the most experienced AIM-focused fund managers in the market. Together, they look after £1.7 billion across all Octopus products (June 2020).
As the name suggests, smaller company investing takes up 100% of the team’s time.
Headed by Richard Power and Kate Tidbury, the team of nine has more than 100 years of industry experience. Together they conduct more than 650 company meetings per year to help identify what they believe are the best investment opportunities. This level of activity is likely to be hard to replicate by competitors. The dedicated investment resource is a key differentiator for the Octopus AIM VCTs, in our view.
Overall, the wider Octopus Group manages £9 billion (June 2020) on behalf of over 150,000 clients. Octopus is the UK’s largest VCT manager, managing over £1 billion across its VCTs on behalf of more than 30,000 investors.
Octopus AIM VCT launched in 1997 (originally as Close AIM VCT plc). Octopus AIM VCT 2 was launched in 2005 (originally as Close IHT AIM VCT plc). After completing separate mergers in 2010, the VCTs have since followed identical investment mandates, investing alongside each other in every subsequent deal. Today, the portfolios are near identical with similar performance and dividend track records. Investors can choose one or the other or split their investment between them.
The managers of the VCTs will consider all qualifying sectors for new investments. Octopus looks for businesses at their last round of funding before reaching self-sustainability or profitability, with enough investment headroom for Octopus to provide follow-on investment, if needed. 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 majority of the VCTs’ deal flow is expected to come from AIM IPOs and existing holdings. Whilst Covid-19 impacted the number of IPOs coming to the AIM market, Octopus remains confident there are still a good number of interesting opportunities available. In fact, new investment activity for the VCTs in the first seven months of 2020 has already matched that of the whole of 2019, suggesting there is no shortage of companies seeking capital in the current environment.
The team is willing to hold investments for the long term, providing it sees the business has potential to grow. Indeed, some of the investee companies have been in the portfolios for over a decade. If a holding becomes too big (greater than 5.5%–6% of the portfolio) the team will reduce the VCTs’ position to maintain balanced weightings.
Regarding investment activity, the team continues to focus on balance sheet strength and company survivability when considering new investments. The team is conscious there will be many companies that have been presented with opportunities as a result of the disruption, and the team does not wish to lose sight of long term growth opportunities due to negative short term noise. In fact, Octopus believes investment activity in 2020 will eclipse that of 2019.
The team has also found communication with investee companies has improved during lockdown, with many companies hosting regular updates for investors.
Current portfolio overview
Investors will hold a diverse portfolio of more than 75 companies across the two VCTs.
Combined, the VCTs have £213 million of net assets (July 2020) and around 80 holdings each. Over 70% of the equity of the portfolio is invested in profitable companies; with 42% invested in companies paying dividends (July 2020).
The top ten sectors for each VCT are shown below: as the graph shows, the profile is very similar.
Source: Octopus Investments, as at 31 July 2020.
Examples of portfolio companies
GB Group (largest holding)
GB Group (“GBG”) is the largest holding in both VCTs, representing around 5.4% of each portfolio as at July 2020.
GBG is one of the leading specialists in fraud, location and identity data intelligence. It launched its first identify verification service in 2006 and has since expanded to over 240 countries with the ability to verify more than 60% of the world’s population.
The company has focused heavily on international expansion in recent years with its international revenues surpassing those from the UK for the first time this year. It has also benefited from a number of astute acquisitions which, in combination with several multi-year fraud licenses, has helped deliver strong organic revenue growth. Between financial years 2015 and 2020 GBG has grown revenues from £57 million to £199 million and achieved a market cap of £1.4 billion. As of 31 July 2020, both Octopus VCTs have made a 10.9x return on their initial investment. Past performance is not a guide to the future.
A specialist in the pharmaceutical industry, Ergomed offers a comprehensive suite of research and biotechnology services.
Its business is split into three distinct operations: clinical studies, drug safety, and drug development. Combined, these services can help clients through Phase I trials all the way to complex later-stage clinical development.
The company has sought a number of specialist acquisitions in the last few years – the most recent, Dutch-based PSR Group BV, should bolster the company’s orphan drug development programme.
The VCTs have invested just under £2.5 million. The company continues to report positive trading updates and its share price has reacted strongly. Ergomed now represents 3.8% of the net assets of the VCTs (July 2020) and is one of the largest holdings.
MaxCyte (recent investment)
Quoted on AIM, US-based MaxCyte has developed a patented, high-performance cell-engineering platform.
The platform allows its biopharmaceutical partners – businesses engaged in drug discovery and development, biomanufacturing and cell therapy, including gene editing and immune-oncology – to unlock the potential of their products, and solve development and commercialisation problems.
The VCTs added to their position in MaxCyte in 2019. The business has since published upbeat annual results for 2019 which showed revenues ahead of expectations and continued commercial progress. In May 2020, MaxCyte raised £25 million from investors at 131p per share. As at 31 July 2020, shares were trading at 248p.
Immotion Group Plc
There will inevitably be investments which do not work out. Immotion Group Plc is one such example.
Immotion Group was one of two stocks bought by the VCTs to gain exposure to the Virtual Reality sector, the other was VR Education, which has proved to be a more successful investment. Immotion sells VR experiences from machines installed in locations such as shopping centres. Octopus invested in Immotion during its IPO in July 2018, which raised proceeds of £5.75 million at 10p per share. Proceeds were to be used to implement the group’s strategy to become the leading provider of “out-of-home” virtual reality experiences. Soon after investing two things became apparent to the team ; firstly, the VR market had not been boosted as much as expected by the launch of devices such as the Oculus. Secondly, Immotion’s business model had changed and was going to need more cash to roll out.
In 2019, Octopus took the decision to sell its holding in Immotion Group at a loss. As at 31 July 2020, Immotion shares were trading at 2.5p after being severely impacted by the disruption caused by Covid-19.
Performance and dividends
Over the last five years to June 2020, the AIM VCTs have endured two substantial periods of volatility, which affected the whole AIM market. The first occurred in late 2018 when investors grew fearful of the outlook for the global economy due to trade tensions between the US and China. This, combined with concerns over Brexit, saw investors shun higher-risk markets such as AIM. The second was caused by the Covid-19 pandemic, which has had a substantial impact on both trusts. Despite these events, both VCTs have generated modest positive returns over the last five years, excluding tax relief.
Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The top bar chart shows net asset value and cumulative dividends per share for the period 31/12/2014-30/06/2020
Octopus AIM VCT seeks to pay annual dividends of 5p per share or a 5% yield, whichever is greater. 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). As the two VCTs pay dividends at different times of the year, investing in both VCTs offers the potential for investors to receive four dividend payments per year.
Over the last five calendar years, Octopus AIM VCT has paid 34.3p per share in dividends, equivalent to 32% of its net asset value. Octopus AIM VCT 2 has paid 26.4p in dividends, equivalent to 33% of its net asset value. Please note 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||5.5%|
|Early bird discount||—|
|Wealth Club initial saving||2.5%|
|Existing shareholder discount||1%|
|Net initial charge through Wealth Club (new investors)||3%|
|Net initial charge through Wealth Club (existing shareholders)||2%|
|Annual management charge||2%|
|Annual administration charge||—|
|Annual rebate from Wealth Club||0.10%|
More detail on the charges
- Deadline for receipt of applications for final allotment in 2020/21 tax year: 12.00 pm on 5 April 2021
- Subsequent allotments under the Offers at regular intervals thereafter
- Deadline for receipt of applications for final allotment in 2021/22 tax year: 12.00 pm on 19 August 2021
Dividend reinvestment scheme
The companies have adopted a dividend reinvestment scheme under which shareholders are given the opportunity to reinvest future dividend payments by way of subscription for new shares. Subject to a shareholder’s personal circumstances, shares subscribed for under the dividend reinvestment scheme should benefit from VCT tax relief.
Share buy-back policy
The boards intend to buy back shares at up to a 5% discount to the prevailing NAV. Please note, all buybacks are subject to the Companies having sufficient funds available and are at the discretion of the boards.
The Octopus AIM VCTs 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.
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.
AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply.
The Octopus AIM VCTs benefit from being managed by a well resourced and experienced team within the UK’s largest VCT manager. The size of Octopus as an investor within the AIM market means the team can have great access to companies' management teams and deal flow.
Over the long term, the Octopus AIM VCTs have consistently returned a mid-single dividend yield to shareholders and maintained their dividend target of 5% for each VCT for this year. Past performance is not a guide to the future.
Covid-19 has had a substantial impact on financial markets, which we expect to remain volatile. The disruption caused by the pandemic will create both threats and opportunities. However, contrary to seeing a dearth of investment opportunities through 2020, investment activity looks set to eclipse that of 2019 following a number of investments into promising pharmaceutical, biotechnology, and software businesses.
In our view, the Octopus AIM VCTs offer an attractive way for experienced investors to back high-quality growth-orientated UK small companies, in a tax-efficient manner. The VCTs have a large sector allocation to both Software & Computing Services, and Pharmaceuticals & Biotechnology, which may complement a wider investment portfolio.
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
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- 3% (2% for existing shareholders)
- Annual rebate
- Funds raised / sought
- £500,000 / £20.0 million
- 5 Apr 2021 (noon)