We thought it might help to provide an update given the current situation with Coronavirus. This update is designed to do three things:
- Explain how we expect the virus to impact your clients’ investments at Octopus.
- Set out some of the ways we can help you continue to do business, particularly in the run up to tax year end.
- Explain how Octopus is reacting to the situation (to reassure you, and because we believe it might give you and your business some practical ideas about how to handle it).
How the virus might impact your clients’ investments at Octopus
The summary below is by no means exhaustive (and only focuses on our largest retail products), but it should offer some reassurance. If you have any questions, we’d be delighted to help.
Octopus Titan VCT
Unlike most investments, VCTs qualify for generous tax breaks that are designed to offset some of the investment risk, including 30% income tax relief on the amount invested, and tax-free dividends.
Octopus Titan VCT has so far raised £105m and expects to allot shares regularly until tax year end, subject to capacity which is filling fast.
One of the big benefits of investing into unlisted companies, especially early stage ones, is that they’re relatively uncorrelated to the short-term swings in value that impact quoted companies. The other benefit of Octopus Titan VCT is that by virtue of its size and longevity, it is invested across an established, diversified portfolio of more than 75 companies, at various stages of their growth journey and operating across a variety of sectors.
Octopus Inheritance Tax Service
The Octopus Inheritance Tax Service invests in companies that qualify for Business Property Relief (BPR). This means the investment can be left free from inheritance tax upon the death of the shareholder, after it has been owned for just two years.
The service invests into the shares of one or more unlisted companies. An example of which is Fern Trading Limited. Fern is managed purely for investors in this service, which means it is able to focus on targeting predictable, modest growth for investors through all market cycles.
We have been managing this product for over 12 years, throughout which time it has consistently delivered against this target for shareholders. This is down to the carefully diversified business model that we implemented for Fern, investing across sectors of the economy that are fundamental to people’s every day lives such as energy generation and healthcare.
And because we invest into an unlisted company, its valuation is less susceptible to short-term movements in market sentiment than quoted companies.
AIM inheritance tax portfolios
The Alternative Investment Market (AIM), as with all stock markets, has been quite volatile over the last few weeks.
However, we invest based on business fundamentals. We meet almost 1,000 companies listed on AIM every year (and have done for more than a decade). We know the businesses and management teams well and we remain confident in the prospects of these companies.
It’s worth considering recent market volatility in the context of our long-term performance, which is set out below. For most of our investors, their AIM portfolio has been one of the best performing investments they’ve held (setting aside the tax reliefs associated with the investment).
| Performance: to end February 2020 | 12 month | 3 Year | 5 Year | 10 Year | 5 Year CAGR |
|---|---|---|---|---|---|
| Octopus AIM ITS portfolios | 5.36% | 5.88% | 50.91% | 254.72% | 8.58% |
| FTSE AIM All Share TR | -4.39% | -1.65% | 28.57% | 43.81% | 5.15% |
| FTSE Small Cap (Ex IT) TR | 2.60% | 4.58% | 28.74% | 155.12% | 5.18% |
| FTSE All Share TR | -1.43% | 4.66% | 19.12% | 93.03% | 3.56% |
| FTSE 100 TR | -2.66% | 2.85% | 16.53% | 80.27% | 3.11% |
Past performance is not a reliable indicator of future results. See below for calculation methodology and five-year performance to end of February.
Source: Lipper, Octopus Investments, 29 February 2020. FTSE indices are shown for illustrative purposes only and are not to be viewed as comparable performance indicators to the Octopus AIM Inheritance Tax Service portfolio.
Some risks to keep in mind
- The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
- Tax treatment depends on individual circumstances and could change in the future.
- Tax reliefs depend on portfolio companies and VCTs maintaining their qualifying status.
- The shares of smaller companies and 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.
How Octopus can help you and your business
We often ask, “What would it take for Octopus to be irreplaceable to financial advisers?” Advisers are our lifeblood and we’ve tried hard over the last twenty years to make doing business with us as easy as possible. Hopefully the following ideas are an example of this thinking at work:
- We recognise tax year end is nearly upon us and lots of clients will have left their decisions to the last minute. We launched an updated Octopus Investments website today and will be adding content that you can share directly with your clients, starting with Octopus Titan VCT. A 40-minute webinar with three of Titan’s fund managers will be live from midday 13 March, which can be shared easily with clients. This will bring to life the tax benefits, the risks and the underlying investments of the product. Our business development managers will also be available to answer any questions you or your clients have by phone or email, if meetings are no longer attractive. Equally, if any of your clients would like to speak directly to one of the fund managers investing their money, let us know and we will make this happen.
- Remember that we have online application forms available here for most of our products, including Titan VCT and the Octopus Inheritance Tax Service. For our VCTs we will be able to allocate shares in the current tax year for application forms and cleared funds up to 3 April, subject to capacity remaining.
- We have trialled a number of communication solutions over the last few weeks. We use Microsoft Teams for collaboration and team calls within Octopus, which works in a web browser or can be downloaded onto laptops, iPads or phones. For client interactions we use Zoom, which allows unlimited numbers of video or audio calls of up to 40 minutes from any laptop or mobile phone, with up to three participants. Your customers may also be familiar with Facetime or WhatsApp calls.
How Octopus is reacting to the situation
We’ve had a team of people planning mitigation actions for the impact of the virus for the last few weeks. Part of our preparation has been to have every team to work from home for a few days over the last fortnight. In our view, this is the only way to understand what the likely issues will be.
Here are some of the issues that emerged and how we solved them:
- Recorded calls – it’s a regulatory requirement that certain calls are recorded. In a world where our employees are using their mobiles this is more difficult. We’ve solved this by using a mobile voice recording platform called MVR Cloud, and putting plans in place to make sure our inbound calls are routed through an external switchboard.
- Communication – different companies have reacted in different ways. In our experience, one of the most important things to get right is to communicate clearly (and regularly) to your employees. We have taken our lead from UK Government guidance (which can be found here).
- Scenario planning – we’ve run various scenarios to understand how we’d cope if the virus impacts any of our third-party suppliers. This is especially important given the high volume of applications that we expect to receive in the coming weeks. We expect our business to run as usual (even if teams are working from home), but we have planned for the worst.
Next steps
We’ll be working flat out over the next few weeks to minimise the impact on you and your clients. If you have any suggestions, comments or questions, you can talk directly to your business development manager, but we’ve also included the email addresses for the three most senior members of the Octopus Investments team. If you contact any one of them, they will get back to you within 24 hours (even at the weekend).
Ruth Handcock (CEO, Octopus Investments) – ruth.handcock@octopusinvestments.com. Ruth is the best person to contact for any operational queries or challenges.
Jonathan Digges (Chief Investment Officer) – jonathan.digges@octopusinvestments.com. Jonathan is the best person to contact for any investment queries or challenges.
Simon Rogerson (Founder) – simon@octopusgroup.com. Feel free to copy Simon in, or contact him directly, about anything.
| 29/02/20 | 28/02/19 | 28/02/18 | 28/02/17 | 28/02/16 | |
|---|---|---|---|---|---|
| Octopus AIM ITS portfolios | 5.36% | -14.29% | 17.25% | 19.93% | 18.84% |
| FTSE AIM All Share TR | -4.39% | -11.32% | 15.99% | 33.06% | -1.75% |
| FTSE Small Cap (Ex IT) TR | 2.60% | -5.55% | 7.91% | 21.19% | 1.57% |
| FTSE All Share TR | -1.43% | 1.70% | 4.40% | 22.81% | -7.32% |
| FTSE 100 TR | -2.66% | 2.15% | 3.44% | 24.14% | -8.74% |
Past performance is not a reliable indicator of future results.
Calculation methodology
Performance is calculated by taking the median return of Octopus AIM Inheritance Tax Service portfolios each quarter. Only those portfolios that have been invested since 30 June 2005 have been included.
If cash is added or withdrawn during a period, then such portfolios have been removed from the calculation. We have then compounded those quarterly total returns which include dividend income, interest, management fees and dealing fees.
A note on FTSE indices
Performance is shown alongside the total returns of the FTSE AIM, FTSE SmallCap (excluding Investment Trusts) and FTSE All-Share indices. These indices are given as an indication of what the wider market is doing and not as a performance comparator for the Octopus AIM Inheritance Tax Service.
