Octopus AIM VCTs

Offer now closed 

As at 13 September 2021 the Octopus AIM VCTs have stopped accepting applications, having reached their £40 million fundraising target. 

Please see other VCT offers that are currently open.  

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. 65% of the portfolio is invested in profitable companies, with 45% invested in companies paying dividends (as at July 2021, based on the companies’ last financial year). 

Both VCTs have to date a consistent dividend track record. Over the last five years to June 2021, Octopus AIM VCT has paid out 30.5 p per share in dividends, equivalent to 25.3% of its average net asset value. Octopus AIM VCT 2 has paid 24.6p per share, equivalent to 29.8% of its average net asset value over the period. Please note past performance is not a guide to the future. 

Octopus AIM VCT has net assets of £181.7 million and Octopus AIM VCT 2 has net assets of £130.3 million, both invested across around 90 holdings.

The current offer seeks to raise £30 million, with a £10 million overallotment facility. [Update – on 9 Sep 2021 the boards have confirmed the overallotment facility will be used].

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights

  • Access to a portfolio of around 90 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
  • Invest in the 2021/22 and 2022/23 tax year
  • Minimum investment £5,000, you can apply online

The manager

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 £2.8 billion across all Octopus products (31 July 2021). 

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 140 years of industry experience. They conduct more than 960 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 £10.7 billion (June 2021) on behalf of over 63,000 clients. Octopus is the UK’s largest VCT manager, managing over £1.7 billion across its VCTs.

Investment strategy

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 funding 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 initially impacted the number of IPOs coming to the AIM market, activity levels have been gaining momentum and matched historical levels in Q2 2021. Consequently, Octopus is confident in the strength of its pipeline; investment activity for the VCTs in the first six months of 2021 has already matched that of the whole of 2020, 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 large (greater than 5 %–6% of the portfolio) the team will reduce the VCTs’ position to maintain balanced weightings.

Covid-19 impact

Both VCTs have experienced a significant recovery from the lows of 2020. Octopus AIM VCT NAV per share has risen from 74.6p on 23 March 2020, to 128.7p as at 16 August 2021. Octopus AIM VCT 2 has risen from 56.4p on 23 March 2020, to 99.7p on 16 August 2021. In addition, AIM VCT and AIM VCT 2 have paid dividends of 6.3p and 11.5p respectively over the period.

For reference, as at 31 December 2019, Octopus AIM VCT NAV per share was 102.3p, and Octopus AIM VCT 2 NAV per share was 76.8p. 

Despite the recent volatility in the AIM market, Octopus has continued to identify new opportunities and investment activity in 2021 has already eclipsed that of the entirety of 2020. Past performance is not a guide to the future.

The team has also worked with its existing portfolio to help companies adjust to the challenges of Covid-19. This includes producing detailed impact statements, running stress testing scenarios, and improving communications with investors. Overall, Octopus believes its companies should be well placed to emerge on the front foot. 

Current portfolio overview

Investors will hold a diverse portfolio of around 90 companies across the two VCTs. 

Combined, the VCTs have £312 million of net assets (July 2021) and around 90 holdings each. 65% of the portfolio is invested in profitable companies; with 45% invested in companies paying dividends (July 2021).

The top ten sectors for each VCT are shown below: as the graph shows, the portfolios are very similar.

Source: Octopus Investments, as at 31 July 2021.

Examples of portfolio companies

Learning Technoogies Group – Octopus AIM VCTsLearning Technologies Group plc (largest holding)

Learning Technologies Group (“LTG”) is a market leader in digital learning and talent management.

Since its admission to AIM in 2013, the company has focused on a ‘buy and build’ strategy to form the Group as it is today. At present, LTG has a portfolio of 12 complementary brands that offer solutions across the entire employee lifecycle, covering everything from recruitment to analytical insights and allows LTG to partner with clients through every step of their learning and talent management strategies.

The business is divided into two key divisions. The first, Software and Platforms, accounts for approximately 70% of Group revenues and sells multi-year SaaS licences with high customer retention rates. The second, Content & Services, delivers short-term, fixed-price projects to clients.

Over the last five financial years, the company has grown revenues from £28.26 million to £132 million as a result of strong organic growth and strategic acquisitions. Furthermore, the company is set to announce revenues of £82.5 million for the six months to June 2021, a rise of 29% year-on-year. Past performance is not a guide to the future. 

LTG is the largest holding in both VCTs, representing 5.5% (Octopus AIM VCT) and 5.1% (Octopus AIM VCT 2) of each portfolio as at 31 July 2021.

MaxCyte – Octopus AIM VCTsMaxCyte 

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 2020, recording $26.2 million in revenue, up 21% year-on-year. In July 2021, MaxCyte successfully completed its dual listing on NASDAQ, raising US$201.8 million, the proceeds of which are expected to be used to expand its manufacturing capabilities and invest in automation. Past performance is not a guide to the future. 

MaxCyte is currently the fifth-largest holding in both VCTs (as at 31 July 2021).

Ilika – Octopus AIM VCTsIlika – recent investment

A spinout from the University of Southampton, Ilika has pioneered technology for solid-state batteries. 

Solid-state batteries generate high energy, charge quickly, and have a long cycle and storage life. Initially, the company focused on the development of novel materials, securing partnerships with a portfolio of blue-chip companies such as Shell, Toyota, and Applied Materials. However, following the release of its product, Stereax, the world’s first micro solid-state battery, it has started to focus solely on the manufacturing of solid-state batteries, for applications such as industrial Internet-of-Things, MedTech, electric vehicles and consumer electronics.

The company is currently in the process of scaling its manufacturing facilities, to achieve a 70x increase in Stereax production capacity by the end of 2021. Simultaneously, it is developing three projects based on its Goliath technology – solid-state batteries for electrical vehicles. The Goliath programme is closely aligned with the UK government’s industrial strategy and has attracted partners such as Honda Europe, McLaren Automotive, and Jaguar Land Rover.

Octopus has invested a total of £1.76 million into the company; the holding is currently valued at £5.1 million. Past performance is not a guide to the future. 

Immotion Group Plc

There will inevitably be investments that 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 decided to sell its holding in Immotion Group at a loss. 

Performance and dividends

Over the last five years to June 2021, 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 had a substantial impact on both trusts. Despite this, both VCTs have recovered well and generated positive returns over the last five years. 

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 31/12/2015-30/06/2021

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 years to June 2021, Octopus AIM VCT has paid 30.5p per share in dividends, equivalent to 25.3% of its average net asset value. Octopus AIM VCT 2 has paid 24.6p in dividends, equivalent to 29.8% 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.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

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
Performance fee
Annual rebate from Wealth Club 0.10%

More detail on the charges

Deadlines

  • Deadline for first allotment: 1 October 2021 (investors should be eligible for Octopus AIM VCT 2’s declared dividends – not guaranteed)
  • Deadline for receipt of applications for final allotment in 2021/22 tax year: 5 April 2022 (noon)
  • Deadline for receipt of applications for final allotment in 2022/23 tax year: 18 August 2022 (noon)

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.

Discount history

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 charts show the five-year discount to net asset value history of the Octopus AIM VCTs 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

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. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. 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. 

Our view

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. However, the AIM market’s exposure to innovative technology and healthcare businesses has enabled it to recover strongly. Fundraising activity has been strong in 2021 and Octopus should be well placed to capitalise on this with investment activity in H1 2021 already eclipsing the entire of 2020.

The Octopus AIM VCTs are two of the more diversified AIM VCTs and, in our view, the offer could be 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.

See five-year performance of shares mentioned above

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.

The details

Type
AIM
Target dividend
-
Initial charge
-
Initial saving via Wealth Club
-
Net initial charge
-
Annual rebate
-
Funds raised / sought
£40.0 million / £40.0 million
Deadline
CLOSED
Last updated: 19 August 2021

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