Investment managers are seeing ample opportunities in the technology and healthcare sectors, using them as a way to diversify client portfolios
Healthcare and technology investing are the two areas making waves in the VCT market, helping advisers to diversify client portfolios across sectors.
The government has been keen to ensure that tax breaks given to alternative investments like VCTs are being used in the way they were intended, to boost the economy and drive growth.
John Glencross, Chief Executive and Founder of VCT and EIS provider Calculus Capital, says the government wants tax advantaged investment to back entrepreneurs.
“The government is very keen to point out that it’s about backing entrepreneurial companies not capital investment [that is] low risk,” he says.
“They were quite determined in wanting capital to flow to young growing companies; it’s about backing an entrepreneurial economy, not just a science economy, and it’s important for investors to understand that for a diversified portfolio.”
Glencross says the interesting companies are using technology in a way that is not too disruptive but to “produce a service that is already established in the market, in a more efficient or global way”.
He quotes a company in Reading, that is providing human resources planning services through their hosted servers, from New Zealand to California,”.
Cottrell says the healthcare sector offers a number of opportunities but when mentioned to clients “quite often the blood pressure goes up”.
Glencross said “There is a range of investment models, such as the drug discovery model, which can have incredible returns but is high risk, and then companies that are providing services to big pharma companies,”
The UK is also a leader in the bioscience and life-science sectors.
“In bio-science, within our portfolio we have companies that measure certain chemicals in the air, which is used by engineers and ports,” says Glencross.
In terms of healthcare investments, through Calculus Capital, Glencross has invested in a diagnostics company that can diagnose Hepatitis C in 50 minutes, not in a laboratory.
“100 million people suffer from it in Africa, and there is now the ability [to test for it] near the point of infection, in 50 minutes, with the same accuracy as it is done in a big laboratory,” she says.
He says companies that cross healthcare and technology are of particular interest, highlighting Horizon Discovery, in which Calculus were early investors.
“It provides services to research institutions, the founders thought they had founded a technology company, but it was really a healthcare company,” he says. Glencross, who is an investment manager, says he is “always looking for themes” in which to invest – especially the business of personalised medicine – and technology, specifically internet services, automation and integration, are “standout” areas.
Claire Olsen, Head of Marketing and Investor Relations at VCT and EIS provider Calculus Capital, pointed to a speech by Prime Minister Theresa May that impressed the point that the UK is “very rich and very lucky” that we have strong businesses.
“She mentioned technology and healthcare as being two of those industries,” says Olsen.
“We don’t know what will happen with Brexit, but there’s something about helping these businesses grow and evolve, and it’s a very interesting time to get involved with EIS and VCT.
“It’s definitely something more and more people are becoming aware of, there is more information provided by the government, publications, and providers.”
The government and providers may see the benefits in driving healthcare and technology in the UK but advisers also need to convince their clients that these high-yielding, but admittedly risky sectors, are worth investing in.
Some clients are more easy to persuade than others depending on their personal circumstances and interests.
David Golding, an independent financial adviser at Charterhall Associates in Essex, says he has a number of clients who are doctors and “healthcare is up their street”.
They are also a good bellwether to judge the validity of an investment, he adds.
“If they like the idea they will sell it to their colleagues,” says Golding.
He adds that “there will be fewer options of where to put your money” in future and “it’s going to be hard work to find lots of investments”, so passing an investment ideas is important for investors and providers.
Glencross says VCTs do offer diversification within their portfolios and “having a larger portfolio is a benefit to investors and comforts advisers” as “markets are continually moving, they never stay the same”.
While healthcare and technology are popular and interesting areas, they are highrisk and not without their pitfalls and Glencross says “I’m seeing a bit of overheating in some areas of technology”.
“Things like fintech is getting very overheated,” he says. “I think we will see a fair amount of capital lost there; we remember the tech crash of 2000.”
He adds: “Within technology, it’s about doing established things – business services – but better, faster, and cheaper.
“We are incredibly rich in bio and life sciences…we are an ageing population, we aren’t necessarily growing healthier; one in 20 children at primary school is clinically obese. We’re going to have huge healthcare requirements going forward.”
Cottrell adds that the starting point for a conversation with a client around VCTs isn’t the tax advantage, but “looking at their willingness and their ability to tolerate risk, and then look at VCTs again from there”.
“They warrant a place in a diversified portfolio,” she says.