Octopus continues to monitor the ongoing coronavirus pandemic developments and, in particular, the impact of the associated economic disruption on portfolio companies.
Overview of the impact of coronavirus on Octopus Eureka EIS
Octopus Eureka EIS comprises around 50 portfolio companies, which are either quoted on the Alternative Investment Market (AIM) or are unquoted private companies spread across a range of sectors. The teams that manage the quoted and unquoted investments have been speaking to their portfolio companies regularly to understand the immediate and potential medium-term impacts of coronavirus on their businesses. The current situation is of course extremely dynamic, with the Government announcing a range of new measures looking to support businesses over the past few weeks. Many portfolio companies have been working through these measures and may look to access any support relevant to their businesses.
Quoted investments
Over recent years, we have exited most of our Octopus Eureka portfolio companies which were quoted on AIM. Quoted investments now only account for around 3.5% of funds under management across Eureka portfolios. The Octopus Quoted Smaller Companies team will continue to sell down the remaining AIM holdings at appropriate valuations.
Unquoted investments
The unquoted investments in your portfolio were selected for their long-term potential and importantly for the strength of their management teams. These companies are spread across a range of different sectors, with the intention of building a well-diversified portfolio for each of our Eureka investors. While the investment risks of investing in smaller companies are well known, it’s worth noting that successful entrepreneurs and early-stage companies are typically much better at adapting to uncertainty and spotting opportunities, with many of the most successful tech companies having emerged during periods of peak economic uncertainty. There are plenty of companies within our portfolio that are thriving in this environment. However, this is not the case for all of the companies within the portfolio, and some have seen their businesses impacted adversely in the current environment, in particular the companies operating in the travel sector.
We have been very impressed with the management teams of the portfolio companies, who have taken swift, decisive and sensible actions. The reality is that no one yet knows what the full impact of coronavirus will be on the future performance of any company and its fundamental valuation. Over time, this will become clearer. In the meantime, many of our companies are planning for an 18- to 24-month impact while remaining in position to take advantage of opportunities along the way. Overall, while there will be businesses which struggle to overcome challenges this environment presents, we remain optimistic about the long-term prospects for many companies in the Eureka portfolio, which is focused on nimble, adaptable, tech-enabled businesses. We continue to work with all portfolio companies to help them mitigate the business impacts of coronavirus and optimise their prospects of success in the future.
Reminder of the risks
- EIS investments in smaller companies are high risk. The value of an EIS investment, and any income from it, can fall as well as rise, and investors may not get back the full amount invested.
- Tax treatment depends on personal circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their EIS-qualifying status.
- The shares of the smaller companies we invest in are likely to fall and rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
As ever, if you have any questions, please contact us.