Unicorn AIM VCT
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Review of Unicorn AIM VCT 2019/20 share offer
The following review was written in February 2020; information is the latest available at that date.
With a history going back to 2001, Unicorn AIM VCT is now the largest AIM VCT and the second largest of all VCTs.
As the name suggests, it invests predominantly in AIM stocks and offers investors a blend of more mature cash-generative companies together with earlier-stage businesses across a variety of sectors and some exposure to unquoted shares.
Managed by highly regarded smaller-company investor Chris Hutchinson, the VCT has managed to deliver attractive returns to investors and pay steady dividends despite the ups and downs of AIM. Over the past 10 years, Unicorn AIM VCT has produced a total return of 178.8%: note past performance is not a guide to the future.
- Largest AIM-focused VCT – £221 million net assets under management (31 Jan 2020)
- Established portfolio of over 90 companies (30 Sep 2019)
- History of steady dividend payments, a total of 34.5p in the last five years – dividends are variable and not guaranteed, and past performance not a guide to the future
- Has shown resilience through market wobbles, recovered strongly in 2019
- Run by Chris Hutchinson, a very experienced AIM manager, supported by a highly regarded team of fund managers
- Unicorn has £1.5 billion of assets under management across its funds, and over £400 million invested in AIM
- 0.10% annual rebate for three years when you invest through Wealth Club
- Minimum investment £3,000
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 19 years’ experience running portfolios of smaller-company stocks. Alongside this VCT, Mr Hutchinson is also the lead manager of the highly regarded Unicorn Outstanding British Companies Fund.
Unicorn is independently owned and managed. Around 60% of the company’s equity is owned by the directors, managers and family members. It has £1.5 billion under management, and £400 million is invested in AIM-quoted companies.
The Unicorn AIM VCT launched in November 2001 and in March 2010 merged with the Unicorn AIM VCT II (along with five share classes) to produce a single share class. The VCT also acquired the assets and liabilities of the Rensburg AIM VCT in 2016, which added £11.5 million to the VCT’s portfolio. As at 30 Jan 2020, Unicorn AIM VCT has assets of £221 million.
The Unicorn AIM VCT seeks 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
Mr Hutchinson aims to identify companies where the management owns a significant stake in the business and has 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 AIM market has been turbulent in recent years and the VCT has been affected, as investors might expect. In the final quarter of 2018, the VCT’s NAV was down 17.5%. However, the VCT’s managers remained confident, believing more realistic pricing from the global share sell-off could bring investment opportunities for the VCT. In 2019, the VCT recovered strongly, generating NAV total returns including dividends of 28% in that calendar year. Past performance is not a guide to the future; dividends are variable and not guaranteed.
There is no specific dividend target. Over the last five years, dividend payments have totalled 34.5p and ranged from 6p to 9.25p per share per annum.
The non-qualifying portion of the portfolio will be invested in a mixture of cash, listed blue-chip shares and the range of OEICs Unicorn manages.
The existing portfolio includes more than 90 companies. They are spread across diverse sectors and a range of market capitalisations. The portfolio currently has a bias towards biotechnology and software businesses, as well as earlier-stage businesses worth less than £50 million.
Of the top 10 holdings, which represent around 45% of the portfolio, all are profitable and seven pay dividends.
Example portfolio companies
Interactive Investor – largest holding
Interactive Investor is the UK’s second-largest online investment platform. It allows investors to access investment information as well as buy, sell and manage their investments online.
Over the last two financial years, the value of the VCT’s stake has grown substantially. Interactive Investor is now its largest holding, accounting for 7.7% of net assets. The Unicorn AIM VCT initially invested in the business in 2013 and its patience has been well rewarded on paper. At the end of the 2017 financial year, the investment in Interactive Investor was showing a modest loss. However, following a series of successful funding rounds and a profitable acquisition of competitor Alliance Trust Savings, the value of the business has risen substantially: from £39 per share in 2017 to £181 per share as at 30 September 2019. Past performance is not a guide to the future.
RenalyticsAI – recent investment
In the year to 30 September 2019, due to volatile market conditions, new investment activity has been subdued. The VCT made just two new investments during the 12 months to September 2019. One was RenalyticsAI.
RenalyticsAI specialises in the development of artificial intelligence-enabled clinical decision tools to improve risk assessment and clinical care in kidney disease, one of the most common and costly chronic medical conditions. It is estimated that over 850 million people worldwide are affected, approximately twice the number of those affected by diabetes.
RenalyticsAI was established in 2018 as a partnership between AIM-listed EKF Diagnostics and Mount Sinai Health System, one of the largest healthcare providers in the United States. It debuted on AIM in November of the same year, raising £22.5 million at £1.21 per share. Since then, the business has produced a number of encouraging patient studies, to which the share price has responded well: RenalyticsAI shares ended 2019 trading at £3.64. Past performance is not a guide to the future.
As can be expected, not all investments work out. The most recent example is Crawshaw Group, the butchers. It was founded in Yorkshire in 1954 and had built up a chain of stores across the Midlands and North of England.
Crawshaw Group specialised in prepacked sausages, chops and similar cuts of meat, alongside cooked chickens and ready meals that people could pick up on the way home from work. Many of the butcher shops were close to or in indoor markets, and the meat was 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 was not immune to the problems facing British high street businesses of late. In the six months to July 2018, the company posted a loss before tax of £1.7 million. The Group blamed tough market conditions and having “too many high street stores and not enough factory stores”. In October 2018, the firm went into administration.
The Unicorn AIM VCT invested at a book cost of £1.5 million in 2007 – the holding has now been written down to nil value.
Performance and dividends
Over the previous five years to 31 May 2020, the Unicorn AIM VCT has paid total dividends of 34.8p per share and has grown its net asset value by 7.3p to 155.6p.
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.
Charges and savings
A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving. 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||3.25%|
|Existing shareholder discount||—|
|Net initial charge through Wealth Club (new investors)||2.25%|
|Net initial charge through Wealth Club (existing shareholders)||2.25%|
|Annual management charge||2%|
|Annual administration charge||£165k|
|Annual rebate from Wealth Club (for three years)||0.10%|
More detail on the charges
Dividend Reinvestment Scheme
Unicorn AIM VCT operates a dividend reinvestment scheme. The scheme provides for dividends to be reinvested in new shares at the latest published Net Asset Value (“NAV”) per share prior to the allotment.
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.
The VCT operates a share buy-back facility at a discount to NAV. This is subject to availability, and board and shareholder approval. Please see the offer documents for details.
The Unicorn AIM 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 0.10% of the Net Asset Value of the Offer Shares issued to you when you invest. You will find the terms and conditions for annual rebates within our Terms of Business.
Unicorn Asset Management is a highly regarded fund management business which specialises in investing in UK smaller companies. Chris Hutchinson has been lead manager of the Unicorn AIM VCT since 2005 and is supported by a team of four: two fund managers and two assistants. The team is also responsible for managing a number of other successful UK investment mandates, including the £700 million Unicorn UK Income Fund.
This is a high profile investment team that has a long-term alignment of interest with investors through equity participation in Unicorn Asset Management.
With regard to performance, the trust has fared well over the last five years having navigated the volatility within the AIM market well, in our view. The trust has paid regular dividends whilst also growing the net asset value, delivering an attractive total return to investors. However, it is important to note this is an AIM VCT: conditions within the UK market, particularly within AIM, are expected to remain highly volatile. This could create opportunities for experienced investors willing to take a longer-term view. Equally, it could mean a bumpy ride and there is no guarantee of success.
In our view, Unicorn AIM VCT is a high-quality offering for experienced investors. 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 the management team gain access to high-quality deal flow to support the deployment of funds raised in this offer.
How to invest
Unicorn AIM VCT is not currently open to new subscriptions; please register your interest here to receive alerts when new VCT offers open.
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
- Annual rebate
- Funds raised / sought
- No current offer
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