They are required to be listed, usually on the London Stock Exchange, and investors benefit from an attractive range of tax reliefs.
Generalist VCTs differ from AIM-focused, limited life and specialist VCTs as they invest in small to medium sized unlisted businesses across a broad range of industries with high potential for growth. These companies may be looking to grow organically or acquire another business.
Typically, a VCT will be invested in a business for between three and six years, but may exit earlier or later depending on a number of factors, such as the value uplift, market conditions and a company's growth strategy.
The more established generalist VCTs in the market have successfully weathered recessions and overcome challenges arising in particular business sectors.
The longevity of these funds is largely down to the expertise and experience of the fund manager and portfolio diversification; however, more importantly, these funds attract a loyal shareholder base that tends to invest for the long term.
Performance of VCTs over 10yrs
Source: FE Analytics
If you are a higher rate tax-payer, then investing a lump sum across a range of generalist VCTs could be a great way to boost your income. If shares are bought when the VCT launches or raises new money, investors can benefit from 30 per cent up-front income tax relief, tax-free capital gains and tax-free dividends.
If VCT shares are bought on the secondary market – i.e. someone else owned them before you – there is no tax relief on your initial investment, but you can still get tax-free income and capital gains. These tax exemptions are available only on VCT purchases of up to £200,000 per tax year, though.
For those investors who are looking to boost their retirement income, buying generalist VCTs’ shares on the secondary market could add an interesting exposure to the large unquoted market, too.
But why aren’t more people trading generalist VCT shares on the secondary market? When you look at the dividend yields offered by the more established and consistent performers in the table below, you may wonder if this is a missed opportunity.
Performance and yields of generalist VCTS
| Name | 10yr return (%) | Tax free yield (%) |
| Mobeus Income & Growth | N/A | 8.4 |
| Baronsmead VCT | 154.52 | 8.1 |
| Northern Venture Trust | 201.24 | 7.7 |
| Baronsmead VCT 2 | 119.62 | 7.6 |
Source: FE Analytics
Ben Yearsley (pictured), head of research at Charles Stanley, regularly champions generalist VCTs, and sees them as a good alternative play for adventurous investors.
“There is robust investor demand, especially for the good-quality generalists paying regular dividends,” he explained.
“For investors who have exhausted ISA and pension allowances, or for adventurous investors who want to diversify their income stream, VCTs remain an attractive proposition.”
I’m keen to promote generalist VCTs, not just because I'm a VCT fund manager and have invested heavily in them over the years, but also because as retirement age looms scarily close my investment strategy will need to evolve.
My priority is to find a way of boosting my income outside of my SIPP. I may not want to be tied in to a five year investment period, preferring to have the freedom to sell my shares when the price is right.
Admittedly, buying VCTs on the secondary market has remained a bit of a mystery to most investors. Historically, there has been a dearth of easily accessible information on fund performance and how to trade in these funds. But things are improving.
Investors can access generalist VCT fund performance from many sources, including the Association of Investment Companies (AIC) and FE Trustnet. Most generalist VCT fund managers provide daily fund performance data on their websites, as well as the latest financial accounts and RIS announcements.
Generalist VCTs can be bought and sold through a stockbroker or via share dealing platforms. Among the stockbrokers particularly active in this area of the market are Singers Capital Markets, Panmure Gordon and Winterflood.
The established generalist VCTs, with a good track record, are definitely worth consideration. The best news is that you don't have to wait for a new share issue, but you can start investing now. Second-hand VCT shares will continue to be a substantial part of my ever-evolving portfolio.
Tim Levett is chairman of NVM Private Equity, and one of the most experienced managers operating in the VCT Generalist sector.
He has headed up the Northern Venture Trust since 1995.