How advisers can adapt to a shifting VCT market

The benefits of diversification are already firmly established in terms of spreading the risk and limiting exposure to any single asset.

However, portfolio diversification can also improve the yield and consistency of income as different assets experience varying performances at different times. Advisers should stress the value of spreading investment to reduce risk.

VCT investors are getting younger

Advisers should also continue to engage more with platforms that allow investors to invest in and hold VCTs .

Younger investors are likely to invest smaller amounts on a more regular basis.

Platforms can help advisers manage this increased administrative burden and allow reporting on performance as well as monitoring and selling VCTs to become much easier.

Equally, the increased digitisation they offer provides a more efficient process with the convenience of, for example, dematerialising share certificates.

Platforms can also help with the exit and sale process for shares, which is normally quite complex as you typically need a stockbroker.

In addition, younger investors will increasingly expect their financial advice process to be digitised.

In a reflection of the wider digitalisation of financial services, a Financial Conduct Authority report found three in four (74 per cent) adults now bank online, while nearly six in 10 (58 per cent) bank using a mobile app.

With VCT qualifying rules requiring a timely deployment of capital, if too much is raised by managers there can be significant pressure to invest capital quickly.

While investment platforms do come with costs, if advisers are increasingly encountering younger, and therefore longer-term, clients, platforms will become an increasingly useful tool for managing portfolios and engaging with this new investor.

Another key thing for advisers to be aware of is the importance of paying attention to the amount of money a VCT is raising.

VCT investment is still a relatively niche sector, meaning there are limits on the amount of capital it can absorb.

Furthermore, with VCT qualifying rules requiring a timely deployment of capital, if too much is raised by managers there can be significant pressure to invest capital quickly.

This can leave investors paying a premium on valuations and more room for errors. Therefore, VCT investors will be making sure management houses have a solid deal pipeline to deploy the capital sensibly.

We know that in the current inflationary environment, bigger is not always better. A more selective and smaller VCT manager could offer investors a better and more sensible solution in the current market.

How investors can capitalise

For investors looking to capitalise on the current appetite for VCTs, there are a variety of factors they may want to consider.