Venture capital trusts (VCTs) have returned 82 per cent by share price total return over the past 10 years, while the top 20 performers were up 141 per cent.
New research from the Association of Investment Companies (AIC) found the top 20 VCTs paid out an average tax free dividend of 87p per share in the 10 years to 31 December 2016, having built up an “impressive” track record.
The VCT generalist sector was particularly successful, with 17 out of the top 20 trusts falling into this category.
The top-performing VCT of the last decade was identified by the AIC as Northern Venture Trust, which was up by 226 per cent since the end of 2006.
Maven Income and Growth VCT tied in second place with Mobeus Equity Partners’ Income and Growth VCT, with returns of 187 per cent each.
“As the VCT sector has matured, so too have returns, with good long-term performance together with a strong tax-free income,” said Annabel Brodie-Smith, communications director of the AIC.
“It is telling that, during the financial crisis, 19 out of the top 20 performing VCTs were still able to pay a dividend. Recently the pension changes and the reduction in the lifetime allowance has boosted investor demand, with fund raising higher to the end of January 2017 than in the previous year.
“The performance figures do not take into account the tax benefits VCT investors receive, to offset some of the higher risk which comes with supporting small and growing UK companies at the coalface of the economy.
"These figures demonstrate that as well as being higher risk, VCTs can also be high reward however, the old adage ‘don’t let the tax tail wag the investment dog’ is as true as ever. If you have any doubts about VCTs, it’s well worth consulting an independent financial adviser.”
The AIC report also found VCTs provided £225m in funds to 115 SMEs over the decade ending 31 December 2016.
VCT-backed businesses averaged an increase of 60 employees per company since their investment, and where investment had been present for over five years, the average increased to 103 jobs per company.
“The performance of the leading VCTs over the last 10 years not only reflects on the depth of talent that has been built up in VCT teams but also the resilience of the UK SME sector,” said Tim Levett, chairman of NVM, fund manager of Northern VCTs.
Mr Levett said: “Post the Brexit referendum the economy has continued to grow and we are confident of seeing a strong flow of exciting companies to back.
“Anything that can help to reinforce the success story that is VCTs is good,” agreed financial adviser Ben Smaje, managing director of Kennedy Black Wealth Management. “They have benefitted over the years from a lot of tax benefits, and the icing of the cake is the strong returns that they’re delivering.