At the height of the VCT fundraising season, managers of the tax-efficient investment vehicles will be disappointed to learn that not a single one of the 245 respondents in a recent Trustnet survey favoured VCTs.
"I only very rarely get customers who want me to recommend VCTs," said Harry Katz who advises at Norwest Consultants.
"Too often the managers of these vehicles have seats on the boards of the companies they are invested in and they use the VCT as a cash-cow for themselves."
"There are occasions where they make money and investors will point towards the tax relief but that is just the bait on the hook. If you want tax-free investment then invest in an ISA."
Source: Trustnet.com
Chris Wise, director at financial adviser Budge and Company, agrees that the tax relief benefits can be attractive for investors, but says the short-comings must be looked at.
"Investors get 30 per cent income relief on their initial investment and future gains are tax-free," explained Wise.
"But you must hold the VCT for five years. If during that five-year period the vehicle isn’t delivering then you get stung when you sell it."
"Historically, VCTs can be very volatile and often the TER is up in the region of three per cent. Also, if your VCT is stock market-based and the market drops 60 per cent then that’s your tax breaks completely gone."
"I prefer asset-backed VCTs like the ones run by Downing and Triple Point."
"As investment people we might believe you get a better return if you invest directly in the market."
Around two thirds of VCTs with a 10-year history lost investors money over the period, according to Financial Express data. The worst, Albion Ventures LLP Kings Arms Yard VCT, lost 87.87 per cent.
Performance of average VCT over 10-yrs
Source: Financial Express Analytics
The average VCT lost investors more than 19 per cent over 10 years, according to Financial Express data.
Mark Dampier, head of research at Hargreaves Lansdown, believes that VCTs can offer great benefits to some investors.
"You can’t buy and sell them like unit trusts but then they should be looked at with a 10-year plan in mind," he said.
"They are not a mass-market product and tend to be for the investor who has paid off their mortgage and is looking to plan for the future."
Whilst the Trustnet survey suggests that investors are not yet piling into the vehicle, there is evidence that demand for the most popular VCTs is outstripping supply.