A good year for VCTs?

With the rules governing the venture capital trust (VCT) sector set to be widened to allow more flexible and efficient investment, 2012 could mark the year that investors sit up and take notice.

According to data from the AIC, VCTs make up half of the top 10 investment company performers of 2011.

Although the sector as a whole was down 3 per cent at the end of last year, it outperformed the average investment company, which was down 11 per cent over the same period, and was in line with the FTSE All-Share.

The VCT Generalist sector was up 0.5 per cent over the year to December 31 2011, and the Sector Specialist: Media, Leisure & Events sector was up 1 per cent.

Over a longer period, although the VCT Generalist sector was down 11.7 per cent over five years, in a difficult environment for taking risk, it has recovered from the credit crunch over three years with a return of 25.5 per cent, according to FE.

With a return of 51 per cent, Foresight VCT was the best performer in 2011. Marketing director Ben Thompson cites a resurgence in merger and acquisition (M&A) activity in the technology sector – particularly by US companies dipping into their large cash reserves to acquire innovative, fast-growing, high-quality businesses – as a direct contributor to the outperformance.

Maven Income and Growth VCT 4 was a close second, with a return of 41 per cent to December 31 2011. Manager Bill Nixon, who also manages three other VCTs that ended the year in the top 10 performers, says: “We have maintained a generalist focus over the past few years, but have enjoyed very good returns from the energy services and insurance sectors in particular.

“Following the BP accident in the Gulf of Mexico a few years ago, spending in areas such as safety, integrity and condition monitoring has increased significantly, as well as an increase in new projects and general capital expenditure across the sector underpinned by an oil price which continues to justify new field developments.”

Mr Nixon argues that the VCT industry has now concentrated into “half a dozen or so well resourced generalist managers” who, in essence, compete for the same deals across the UK.

The 2010/11 VCT fundraising season was a success, raising £365m – a 6 per cent increase on the year before. So far this year Matrix Private Equity Partners has launched a £21m linked fundraising across three VCTs it manages, and Baronsmead has already raised £16.5m in fundraising across its products.

Looking at 2012, there is a sense VCTs can continue to perform strongly, so long as companies are well managed.

Annabel Brodie-Smith, communications director at the AIC, says: “The VCT sector held up relatively well last year and as it matures into its sixteenth year, the longer term performance record is encouraging for much of the sector.”