Hargreave Hale AIM VCT

Hargreave Hale AIM VCT is an established VCT that launched in 2004. It is managed by Canaccord Genuity Fund Management, which acquired experienced UK smaller company fund manager Hargreave Hale in 2017. 

The VCT has net assets of £159.5 million (January 2024), of which around 52% is invested in VCT-qualifying investments. These are mostly quoted on AIM, although the manager will also invest in unquoted companies on an opportunistic basis. The remainder is spread across the Marlborough Special Situations Fund, UK main market equities, fixed-income securities and cash. 

Over the 10 years to 31 December 2023, the VCT delivered a NAV total return (including dividends) of 7.7%. Past performance is not a guide to the future.

• Seeking to raise up to £20 million, with a £20 million overallotment facility 
  
• Targets annual dividends of 5% of NAV – variable not guaranteed 
• Minimum investment £5,000 

The manager

Canaccord Genuity Fund Management, formerly Hargreave Hale, specialises in UK smaller company investments. It has managed AIM VCTs since 2004 and is also responsible for many of the highly regarded Marlborough unit trusts, including the £720 million Special Situations Fund, the UK Micro-Cap Growth Fund, and the Multi-Cap Income Fund.

The team is part of Canaccord Genuity Wealth Management, a global investment group with C$99.2 billion under management or administration (December 2023).

Today, Canaccord Genuity Asset Management comprises 15 investment professionals who are responsible for £2.7 billion (January 2024). The VCT team is headed up by Oliver Bedford, who became lead manager in July 2019. Having joined as an analyst in 2004, Oliver has been involved with the manager for almost two decades and worked alongside previous lead manager Giles Hargreave until December 2020, when Giles stepped down. Oliver is supported by co-manager Lucy Bloomfield, portfolio manager Anna Salim, investment analyst Archie Stirling, and a legal counsel.

Investment strategy

The VCT expects to invest primarily in AIM-quoted companies, and to a lesser degree in private companies that intend to IPO on AIM in the near future. 

The VCT also invests a sizeable portion of assets in non-qualifying UK and international equities, fixed income securities and cash. The team will target non-qualifying investments on an opportunistic basis. 

With any investment, the team looks for the same core qualities:

• A strong and experienced management team
• Intellectual property
• High cash generation, strong balance sheets, and revenue visibility
• Competitive market positions with defined customer profiles

The investment team follows a stock-specific, rather than sector-specific, investment approach and is more likely to provide growth and development capital to relatively established businesses than start-ups. 

A proportion of funds raised will be invested into the Marlborough Special Situations Fund and Marlborough Micro-Cap Growth Fund to maintain exposure to small companies pending investment into qualifying companies.

Portfolio overview

Qualifying investment activity remained subdued in quarter to 31 December 2023 with the VCT making one follow-on investment, worth £0.5 million, into biopesticide developer and manufacturer Eden Research. It has since invested £2 million into existing portfolio company, automotive components manufacturer Strip Tinning.

The VCT has net assets of £159.5 million (January 2024). The top 10 qualifying investments currently represent 20.8% of the VCT’s net asset value. 

The VCT has a very diversified portfolio, with a greater proportion of non-qualifying investments than many peers. 

Around 52% of net assets is invested in qualifying investments, predominantly quoted on AIM but with some unquoted investments. Non-qualifying equity investments and two Marlborough Funds account for a further 21%, while non-qualifying, blue-chip fixed income investments and an iShares shorted-dated Gilt tracker make up around 13.2% of the fund.

The remaining 13.6% of net assets is in cash. 

Asset allocation (%)

Sector breakdown (%)

Examples of portfolio companies

Equipmake – largest quoted holding 

Equipmake manufactures electric motors and powertrains for the automotive, marine, aerospace, construction and public transport markets. The company was founded in 1997 by Ian Foley, who remains CEO, following a decade’s experience in motorsport, including at Williams FW and as managing director of spinout Williams Hybrid Power. 

The company listed on AQUIS in July 2022, raising £16.2 million to invest in continued expansion in the bus electrification market. 

Following its first year as a public company, the business reported revenues of £5.1 million in May 2023, up 37.8%, as it moved from an R&D focussed business to production. Since then the company has shown further progress, with revenues in the six months to Nov 2023 up 97% to £2.1 million following new contract wins.

The Hargreave Hale VCT first invested in July 2022 as part of the group’s IPO and has to date invested £3.7 million. As at the end of January 2024, the investment is valued at £5.1 million and accounts for 3.2% of net asset value. Past performance is not a guide to the future.

My First Years – largest unquoted holding

My 1st Years was founded in 2010 by schoolmates Daniel Price and Jonny Sitton after struggling to find a unique and personal gift for a friend’s newborn.

They launched My 1st Years to sell high-quality personalised gifts for babies and young children online, offering everything from embroidered dressing gowns to toys. 

The company raised £5.6 million from Hargreave Hale AIM VCT and Beringea, manager of the Proven VCTs, in January 2017. However, having successfully weathered the pandemic, the firm was hit by disaster in 2021 when its warehouse caught fire – destroying £3 million of stock, £1 million of equipment and halting sales for 18 weeks. The firm bounced back strongly, with sales of £18.8 million in 2022, the most recent year for which figures are available, up 40% year-on-year. 

The Hargreave Hale AIM VCT’s stake is now valued at £3.1 million, on a £2.5 million cost, and accounts for 1.9% of net assets (January 2024). Past performance is not a guide to the future.

Engage XR – recent investment, AIM-quoted

Engage XR is a virtual reality metaverse platform. It allows employees to mingle and collaborate in a variety of virtual settings, helping deliver immersive corporate communications, remote events, training and education. 

The company has built a sizeable user base, with more than 200 enterprise and education customers, including several blue-chip companies such as Meta, PwC, HSBC, and Pfizer. In 2023, the platform hosted its first virtual reality concert with Fatboy Slim and launched a partnership with Lenovo, targeting the virtual headset maker’s top 100 customers.

As at the end of December 2023, Engage had revenues of €3.7m and more than 15,000 licensed enterprise or education users, up from 10,000 in 2022. In early 2024, the Company announced it had signed its first seven-figure contract with a large Middle East-based training and development company. 

Engage XR raised €9.9 million in March 2023, with the Hargreave Hale VCT investing £3.5 million. That position was valued at £2.7 million at the end of July 2023, accounting for 1.5% of the portfolio.

HonestBrew – example of previous failure

As is to be expected, not all investments work out. HonestBrew is one such example. 

HonestBrew was an online craft beer subscription service. Launched in 2014, it created personalised pick-and-mix boxes from a range of independent brewers. Having grown its customer base, the business later moved to a tiered subscription model and was shipping in the region of 13,000 bottles per day. 

However, following a challenging few years, the company announced in June 2022 that it would enter into administration. The holding was fully written down, resulting in a loss of £3.1 million for the VCT, including £300,000 in loan notes.

Exit track record

Most of the companies in which AIM VCTs invest are quoted on AIM, so shares can be 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.

Performance and dividends

The AIM market fell 6.4% in 2023 – past performance is not a guide to future performance. We believe this can be attributed, in large part, to rising interest rates denting demand for high growth companies not currently delivering a profit – particularly in technology and healthcare. These are exactly the kinds of companies AIM VCTs tend to invest in.

The Hargreave Hale AIM VCT fell by 16% in 2023 (NAV total return including dividends). Over five years the VCT has produced a NAV total return (including dividends) of -10.9%. This includes 25.2p per share paid out to investors in dividends, equivalent to 34.5% of starting net asset value of the VCT.

Over ten years, the VCT has delivered a NAV total return of 7.7%. 

Past performance is not a guide to the future, 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 (DRIS)

The VCT started offering a dividend re-investment scheme (“DRIS”) in 2020. This 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 buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed – 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 31 December 2023 was -7.76%. Over the previous five years the average discount to NAV was -5.99%.

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-quoted 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.