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 £161.9 million (July 2023), of which around 60% 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 
• Invest in the 2023/24 and 2024/25 tax years
• Minimum investment £5,000 
• Next deadline: 22 March 2024 (5pm) for final allotment in 2023/24 tax year

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 £840 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 which manages $97.3 billion (June 2023).

Today, Canaccord Genuity Fund Management comprises 16 fund managers and analysts who are responsible for £3.1 billion (July 2023). 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 Lucy Bloomfield (deputy fund manager), two investment analysts, and a legal counsel. 

Investment strategy

The VCT offers investors exposure to a diversified portfolio of primarily AIM-quoted companies, but also private and companies planning to trade on AIM. 

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:

• 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 to maintain exposure to small companies pending investment into qualifying companies.

Portfolio overview

Over the nine months to June 2023, the VCT made seven qualifying investments, totalling £11.6 million, split between new (£8.8 million) and follow-on (£2.8 million). This is lower than in previous years and reflects the lack of fundraising activity on AIM over the period. Nonetheless, the investment team is confident sufficient opportunities remain and that current economic conditions could generate interesting and well priced deals.

The VCT has net assets of £161.9 million (July 2023). The top 10 investments currently represent 23.3% 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 59% of net assets is invested in qualifying investments, predominantly quoted on AIM but with some unquoted investments. Non-qualifying equity investments and the Marlborough Special Situations Fund account for a further 15%, while six non-qualifying, blue-chip fixed income investments and an iShares shorted-dated Gilt tracker make up around 12% of the fund.

The remaining 14% 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. 

In its first year as a public company the business reported expected revenues of £5.1 million, up 37.8% as it moved from an R&D focussed business to production. It has won a number of contracts to convert diesel buses to electric, with customers including FirstGroup and Transport for London, and new opportunities are emerging in coaches and fire trucks. As a result, Equipmake’s contracted order book stood at £5.5 million at the beginning of July 2023. 

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 July 2023, the investment is valued at £7.7 million and accounts for 4.8% of net asset value. Past performance is not a guide to the future.

KIDLY – largest unquoted holding

Launched in May 2016, KIDLY is an online kids’ lifestyle store for babies and children up to age 5. It was founded by ASOS’s first employee and e-commerce director, James Hart, after becoming a father, to provide a curated selection of brands for “all things kid”.

The store offers a collection of KIDLY own-brand quality, sustainable clothing, homewares and toys - alongside an edit of complementary third-party children’s brands, all tested and approved by real parents. The company is now focusing on growing its higher-margin own brand KIDLY Label, with over half a million goods purchased from the range so far, including over 250,000 sales in 2022 alone. 

The service has proven popular with customers, averaging 4.9 stars out of five from over 21,000 reviews and has had cumulative gross sales of £50 million since launch.

Hargreave Hale invested a little over £4 million in March 2020, through a mixture of equity and convertible loan notes. As at the end of July 2023, Kidly is the VCT’s third largest holding, representing 2.2% of the portfolio and is valued at £3.5 million following down rounds in 2022 and 2023. 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 220 active enterprise and education customers as at June 2023, and expected revenues of €2.1 million and a gross margin of 93% in the first half of the year (up 18% year-on-year). Customers include several blue-chip companies such as Meta, HP, HSBC, and Pfizer. 

The first six months of 2023 also saw the platform host its first virtual reality concert with Fatboy Slim and launch a partnership with Lenovo targeting the virtual headset maker’s top 100 customers.

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 1.6% 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 has suffered a substantial fall in recent months, declining 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 has fallen 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.