Octopus AIM VCT 2 Q&A

In the run up to the AGM we invited shareholders to ask the Board and Investment Manager questions remotely. We thank those who took the time to send us questions and will respond to you individually. Below is a summary of the themes received in this Q&A with responses from Keith Mullins (Chairman) and Kate Tidbury (Investment Manager).

Share buybacks

Octopus AIM VCT 2 offers a share buyback facility for investors, provided there are funds available. This facility allows existing Octopus AIM VCT 2 investors to sell their shares back to the VCT at a small discount to the NAV. The current policy agreed by the Board is to buy shares back at a 5% discount to the NAV. Share buybacks are conducted at the Board’s discretion, and therefore there can be no guarantees that shares will always be bought on request. It’s worth noting, however, that the Octopus AIM VCTs have a strong record of buying back shares from investors. The buybacks are calculated using the most recent NAV. The VCT publishes its NAV weekly so there are no ‘closed’ periods.

The Board monitors and intends to retain a policy which fairly balances the interests of both remaining and selling shareholders.

Future dividends

The Company’s dividend policy as set out in the report and accounts is as follows:

Octopus AIM 2 intends to pay a minimum annual dividend of 3.6p per share or a 5% yield based on Octopus AIM 2’s share price at the previous financial year end, whichever is greater at the time. Dividends will be paid semi-annually.

It remains the intention of the Directors of Octopus AIM 2 to continue this policy, subject to available cash and distributable reserves.

Any change in dividend policy would have to be announced to the market and regulatory notice submitted.

Director transactions

The Board members remain supportive shareholders, and although there have been no recent director purchases – there have also not been any disposals.

All Directors are invested in the Octopus AIM VCT 2.

Deployment

In the year to 30 November 2019 the challenges around international trade, politics and the visibility of the nature of any Brexit settlement continued to prey on sentiment, with the result that stock markets remained vulnerable to bouts of nervousness and volatility throughout the year. Investors remained cautious about risk, and as a consequence smaller companies underperformed as an asset class. Weaker fund raising was particularly noticeable with AIM experiencing a sharp decline in the number of new entrants seeking a listing although it continued to raise new capital for its existing members.

We have seen an improvement in 2020, particularly in March as companies have been eager to get needed cash on board after lengthy delays in 2019. Recently, many companies have opted to raise money in order to keep moving forwards, which is something that we expected when we launched the fundraise. However, we’ve seen many companies continue to do so despite more volatile market conditions. 

We have already started to see some good opportunities to deploy the cash and have made several investments since the start of the year.  As you will be aware, the stock market has been volatile and so this has meant that the majority of recent investment opportunities have been to support existing AIM companies rather than newly floating companies. Many potential new flotations will have been put on hold until conditions are more settled. Capital raising for existing AIM companies are typically made at a share price related to the screen price which will reflect prevailing market valuations. We will invest using our usual criteria which takes account of the potential for medium and long term business progress viewed against the current valuation.

COVID 19

The situation with COVID 19 is still unfolding and represents a huge challenge to individuals and companies of all sizes. We have a portfolio of around 80 companies across a wide range of sectors and so the effects of COVID will vary for each of them. It is certainly a challenging time for all of them.

We have relatively low exposure to retail and the direct consumer and higher exposure to pharmaceutical services, healthcare and software which are sectors that will probably see opportunities as a result of changes in working habits and increased focus on healthcare. Some of our investments have seen their share prices rise on the announcement of involvements in developing tests for COVID or conducting drugs trials. The mix is reflected in the performance of the NAV which has so far fallen less than the AIM or FTSE All share Index in 2020.

Our funds remain very much open for business and the investment team is continuing to evaluate new businesses to invest in. The investment team continues to function in the same way as ever and is in close contact with many of the management teams to understand what is going on and how we can be supportive. We are reaching out to those who may require support and stand ready to back businesses during these challenging times.

Further shareholder engagement

As this AGM was a closed event, we plan to offer an alternative format and date for shareholder engagement later in the year when there is better visibility on what will be permissible and practical due to the Coronavirus measures.

If the circumstances do not allow us to do this in person, we will look to host a webinar. As these arrangements evolve, and we will keep shareholders updated of any changes and post regulatory announcements and on our website.

Reminder of the key risks

• The value of an investment into the AIM VCTs, and any income from it, can fall as well as rise and investors may not get back the full amount invested.
• VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
• Tax reliefs available on VCT investments depend on individual circumstances and may change in the future. Tax reliefs also depend on the VCT maintaining its VCT-qualifying status.
• This advertisement is not a prospectus. Investors should only subscribe for shares on the basis of information contained in the prospectus and Key Information Documents (KIDs), which are available in the document section of our product page.