Unicorn AIM VCT

Unicorn AIM VCT is the largest AIM VCT and the third largest of all VCTs, with net assets of £221.5 million (December 2022). 

It invests predominantly in AIM stocks: a blend of more mature cash-generative companies and earlier-stage businesses across a variety of sectors. The VCT also occasionally invests in unquoted companies currently accounting for c.10% of net assets. The VCT’s largest holding, Hasgrove, which is unquoted, represents 9.1%.

Managed by highly regarded smaller-company investor Chris Hutchinson, the VCT has an established track record and has paid steady dividends despite the ups and downs of AIM. Over 10 years it is the top-performing AIM VCT, delivering a total return of 136.3% (December 2022) – please note, past performance is not a guide to the future.

• Seeking to raise up to £10 million with a £5 million overallotment facility
• The VCT does not specify a dividend target – dividends are variable and not guaranteed
• Invest in the 2022/23 tax year
• Minimum investment £3,000 – you can apply online

Please note: this is a small offer and can fill quickly. Previous offers with larger capacity have filled in days. 

The manager

Unicorn Asset Management Ltd (“Unicorn”) is a specialist fund manager with a bias towards smaller companies. Chris Hutchinson is the senior fund manager and has 20 years’ experience running portfolios of smaller-company stocks. Alongside this VCT, Mr Hutchinson is also the lead manager of Unicorn Outstanding British Companies Fund (an OEIC). Chris is supported by a further four UK equity fund managers. Collectively, the team is responsible for managing Unicorn’s suite of investment funds as well as its AIM IHT service. 

The wider Unicorn team has recently added two investment analysts, including an ESG specialist.

Unicorn is independently owned and managed. Around 60% of the company’s equity is owned by the directors, managers and family members. It has over £900 million under management (December 2022), with around £300 million invested in AIM-quoted companies. The wider fund group allows the manager to continue supporting businesses when they are no longer VCT eligible, potentially making Unicorn AIM VCT attractive as a partner to investee companies. 

Investment strategy 

Unicorn AIM VCT seeks to invest in largely AIM-quoted companies with the following characteristics:

• Experienced and well motivated management teams
• Products and services supplying growing markets
• Sound operational and financial controls
• Potential for good cash generation

In the past, the manager has also invested a smaller proportion of the fund in unquoted smaller companies.

Chris Hutchinson favours companies where the management owns a significant stake in the business and with a demonstrable track record of making money for shareholders. He is a firm believer that if the management has a big stake, they will be focused on the dividends as they are beneficiaries themselves. 

Unicorn has a cautious, “bottom-up” stock-picking approach, which favours spending time with investee companies and fully understanding them before investing for the long term.

Mr Hutchinson has in the past said: “Over 20 years, what I’ve learnt more than anything is that it’s not so much getting the ones that go up tenfold, but more about avoiding the ones that will blow up. You can only do that if you take a cautious approach, buying proper businesses with profit and cash flow.”

The non-qualifying portion of the portfolio is invested in a mixture of cash, non-qualifying AIM-quoted companies, blue-chip shares listed on the main market and the range of OEICs Unicorn manages.

Portfolio overview

As of 31 December 2022, the Unicorn AIM VCT portfolio contained over 90 qualifying companies. The portfolio is relatively concentrated with the top 10 holdings accounting for 47.4% of total assets. 

Investment activity for the year to September 2022 was affected by a drop in both the number and quality of new qualifying opportunities so only two new investments were added to the portfolio in the period, alongside six follow-on deals. Approximately £9.8 million was committed across these eight investments. Since then the VCT has made two further investments; a £2 million investment into new company Oxford Biodynamics and £0.1 million follow-on into SulNOx Group.

The current portfolio is spread across diverse sectors, with a bias towards pharmaceuticals & biotechnology and software & computer services businesses. 

Asset allocation (%)

Sector breakdown (%)

Example portfolio companies

Hasgrove – largest holding (unquoted)

Hasgrove is the largest holding in the Unicorn AIM VCT.

Its only operating subsidiary, Interact, is a leading provider of corporate intranet solutions. An intranet is a private network used within an organisation to securely share internal information and resources.

Interact offers a suite of services, from planning and launching a custom network through to hands-on training and technical consultation. It now has more than four million global users and includes clients such as Sony PlayStation, Domino’s, and the NBA.

The company has had a positive start to its latest financial year, growing revenues by 25% in the first eight months to £18.4 million and securing a two-and-a-half-year contract with the US House of Representatives. Despite this progress, the carrying value of the VCT’s investment has been marked down, reflecting the decline in market comparables. 

The VCT’s holding is currently valued at £20.2 million (December 2022), against a cost of £1.3 million, accounting for 9.1% of net assets. Past performance is not a guide to the future.

Tracsis – largest AIM-quoted holding

Tracsis was spun out from the University of Leeds' School of Computing in 2004, following the development of crew scheduling software for rail services by Dr Raymond Kwan. Tracsis’ scheduling and rostering software (which helps railways run more efficiently) and condition monitoring hardware (which identifies possible issues with rail infrastructure before a costly failure) are now used by virtually all UK train operating companies. 

More recently the company has acquired North American train software business RailComm as it looks to expand its product range and access North American train operators. Acquisitions as well as organic growth saw revenues hit c. £69 million for the twelve months to 31 July 2022, up 37.5% year-on-year.

Tracsis was admitted to AIM in November 2007 at a valuation of £7 million and is now valued at approximately £280 million (December 2022). Unicorn’s holding is valued at £15.8 million; the investment cost was £1.5 million (December 2022). Past performance is not a guide to the future. 

The position is the VCT’s second largest holding, accounting for 7.2% of net assets.

Exit track record

Shares quoted on AIM are bought and sold more easily than is the case with private (unquoted) companies. Realisations – particularly partial ones – are common with AIM VCTs, for instance, to rebalance the portfolio. We do not believe they are indicative of a manager’s performance and for this reason we don’t focus on them.

However, the Unicorn AIM VCT also invests a smaller proportion of the fund in unquoted companies. One recent exit from the VCT’s unquoted portfolio is Interactive Investor (detailed below).

Interactive Investor – example of previous unquoted exit

Interactive Investor is the UK’s largest ‘flat-fee’ investment platform with over £50 billion in assets under administration and over 400,000 customers.

Unicorn first invested in November 2013, acquiring a stake while the business was still small and relatively unknown. The platform continued to grow steadily but achieved real pace after the appointment of a new CEO in 2017. From that point the business started to deliver rapid and sustained growth, acquiring four competitors in four years. These acquisitions helped the customer base reach critical mass, which in turn generated healthy profits for the business. 

In December 2021 asset management giant abrdn announced plans to acquire the company for £1.49 billion. The sale completed in May 2022 and the VCT received approximately £55.1 million in cash proceeds, against a book cost of £3.5 million. The entire realised gain of £51.6 million was subsequently distributed to shareholders as a special interim dividend of 32p in August 2022. Past performance is not a guide to future returns, dividends are variable and not guaranteed.

Crawshaw Group – example of previous failure

As can be expected, not all investments work out. Meat retailer business Crawshaw Group is one such example. Founded in Yorkshire in 1954, the group had at one point more than 50 stores in the Midlands and northern England. Its shops specialised in prepacked sausages, chops and similar, alongside cooked chickens and ready meals, often cheaper than in the supermarket. 

The stock was one of the darlings of AIM in 2014 and went up almost eightfold over the year.

Unfortunately, Crawshaw Group struggled with increasingly tough market conditions. In the six months to July 2018, the company posted a loss before tax of £1.7 million and in October 2018 it went into administration.

Unicorn AIM VCT invested at a book cost of £1.5 million in 2007 – the holding was since written down and continues to be held at nil value.

Performance and dividends

The AIM market has suffered from three periods of substantial volatility over the last five years: the first due to concerns over Brexit and US/China trade relations, the second due to the global pandemic, and the third due to the war in Ukraine and current macroeconomic conditions. 

The VCT has not been immune to these and fell by 28.9% in the year to December 2022 (NAV total return including dividends). Over the longer term, the VCT has delivered a NAV total return (including dividends) of 20.3% over five years and 136.3% over 10 years. Past performance is not a guide to the future. 

There is no specific dividend target. Over the last five years, dividend payments have totalled 71.5p, a large portion of which is attributed to two special dividends (32p and 7p) paid following the sales of Interactive Investor (the VCT’s largest holding at the time) and Augean in 2022 – dividends are variable and not guaranteed.

Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme

A dividend reinvestment scheme is available if shareholders wish to reinvest dividend payments by way of subscription for new shares. 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 buybacks

The board intends to buy back shares at a discount, set at the discretion of the board, to the prevailing net asset value. In 2022, £4.4 million of shares were bought back, with discounts ranging from 12.6% to 16.4%. 

This policy is unlike other VCTs (which typically target a discount between 5-10%) and could mean that investors are unable to sell their shares at a similar discount to other VCTs. However, the share buybacks have the potential to add to the performance of the VCT and benefit remaining shareholders. Please see the offer documents for details.

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.

Based on data from Morningstar, the discount to NAV as at 30 June 2023 was -15.39%. Over the previous five years the average discount to NAV was -14.00%.

The discount history is based on the closing share price of the VCT 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 VCTs’ share buyback facilities, although this is not guaranteed.

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.

The quantity and quality of investment opportunities available to AIM VCTs is dependent on sufficient VCT-qualifying fundraising activity on the AIM market, which will fluctuate.

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.

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, offer price and share allotment calculation methodology.

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.

Annual rebate when you invest through Wealth Club

The VCT 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 a percentage (shown in the table above) of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Our view

Unicorn is a highly regarded fund management business that specialises in investing in UK smaller companies. Chris Hutchinson has been lead manager of Unicorn AIM VCT since 2005 and is supported by an experienced fund management team. The team is responsible for several other UK investment mandates, including the c.£430 million Unicorn UK Income Fund.

It is pleasing to see the investment team’s long-term interests are aligned with investors through equity participation in Unicorn Asset Management.

Difficult market conditions over the last year have seen AIM growth stocks falling out of favour and valuations suffer. This decline has been particularly severe within the biotechnology and software sectors, both of which had historically been strong contributors to that VCT’s performance.

The unquoted portfolio has fared better, with the VCT realising its stake in Interactive Investor for a 15.7x return with all realised proceeds returned to investors. Dividends are variable and not guaranteed.

Despite a difficult year, the investment team continues to have confidence in its investment strategy. The VCT’s long-term track record remains intact as the top-performing AIM VCT over 10 years (to December 2022), with a NAV total return of 136.3%. Past performance is not a guide to the future.

In our view, Unicorn AIM VCT is a high-quality offering for experienced investors to consider. The investment strategy is clearly defined, and the fund management team has a strong long-term track record. In addition, Unicorn is a substantial AIM investor. This could help gain access to high-quality deal flow to support the deployment of funds raised in this offer.

Investors should note the VCT lacks a strict share buyback policy and can trade at a large discount to its net asset value.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.