Unicorn AIM IHT ISA

The Unicorn AIM IHT Portfolio Service is run by specialist UK smaller company investor Unicorn Asset Management (‘Unicorn’), which began investing in AIM in 2000. Unicorn currently manages close to £800 million across its range of predominantly UK equity focused investment mandates; of this, £37 million is within the AIM IHT Portfolio Service (June 2024).

The investment team is headed up by Chris Hutchinson, who has been managing portfolios of UK smaller companies for more than 20 years. He is the lead manager of the Unicorn AIM VCT (the UK’s largest AIM VCT) as well as the Unicorn Outstanding British Companies Fund and has primary responsibility for selecting stocks for the AIM IHT service, focusing on established, profitable, and cash-generative businesses.

• Portfolio of 25-40 AIM stocks
• Dividend or growth focus, plus responsible investment options available
• Minimum investment £20,000 (exclusive to Wealth Club clients) 
• Apply in an ISA: top up or make a new subscription online using the link below. 
  

The manager

Unicorn, the Investment Adviser to the service, is a specialist AIM, small and mid-cap manager. It manages close to £800 million across its five UK equity funds, Unicorn Mastertrust, the Unicorn AIM VCT, and Unicorn AIM IHT Portfolio Service (June 2024). Overall, it manages c.£300 million in AIM stocks. 

Unicorn has been investing in AIM since the company’s inception in 2000. It has a dedicated in-house research team which seeks to uncover attractive opportunities that may not yet be known to other investment groups. 

There are eight members in the investment team, with Chris Hutchinson acting as senior fund manager. Mr Hutchinson joined Unicorn in 2005 and has more than 25 years’ experience covering UK small and mid-sized equities. He is the lead manager of the Unicorn AIM VCT (the UK’s largest AIM VCT) as well as the Unicorn Outstanding British Companies Fund and has primary responsibility for selecting stocks for the service. 

WM Capital Management Limited (WM) is the portfolio Discretionary Investment Manager, responsible for the day-to-day management of investor portfolios, including the allocation of stocks, compliance and taking legal advice on a stock's BPR-qualifying status. James Brearley & Sons Limited (James Brearley) is the Administrator and Custodian, holding shares on investors’ behalf.

Investment strategy

There are around 725 firms on AIM and, as Chris Hutchinson has put it, ‘Among the dross there are some great businesses.'

The service sticks to what Mr Hutchinson considers to be the fundamentals of stock picking. It seeks established, profitable, and cash-generative businesses with minimal gearing, offering products or services with tangible benefits for their consumers. 

The team favours companies whose founders or management team have retained a meaningful stake in the business. In Unicorn’s experience, these tend to be more risk-averse and focused on long-term growth, traits that complement the service. 

Investors have the choice of Dividend Focus or Growth Focus. Both follow a similar investment strategy but whilst the growth portfolio places greater emphasis on companies that Unicorn believes can deliver sustainable earnings growth, the dividend portfolio focuses on companies paying attractive and potentially growing dividends (dividends are variable and not guaranteed).

Responsible Investment Portfolio Service options 

As a signatory of the United Nations Principles of Responsible Investment, Unicorn has a company-wide Responsible Investment Policy, which commits its investment team to consider Environmental, Social, and Governance (ESG) issues when selecting stocks for all its investment mandates.

The Dividend Focus and Growth Focus portfolios will be managed in line with Unicorn’s Responsible Investment Policy.

In addition, each portfolio has a specific responsible investment subset available (Responsible Growth Focus Portfolio and Responsible Dividend Focus Portfolio) for investors who wish to adopt stricter sector limits and exclusions:

• No companies that generate any revenues from any of the following sectors: adult entertainment, animal welfare, genetic engineering, gambling, and tobacco manufacture
  
• No companies that generate 5% or more of their revenues from alcohol, defence & weapons and nuclear power
• No companies the investment team considers to be involved in significant ESG controversies 

The Responsible Portfolios will not hold a stock that is not already held within the Growth Focus or Dividend Focus portfolio on their own investment merit. Please also note the portfolios screen out non-responsible investments rather than actively seeking responsible investments. 

Currently, six stocks are excluded from the Responsible Portfolios: Advanced Medical Solutions, Ashtead Technology Holdings, Cohort, Gooch & Housego, Solid State, and Young & Co’s Brewery.

Current portfolio overview

Unicorn is sector agnostic although its focus on cash-generative businesses precludes higher-risk sectors such as oil, gas, mining, and commodities as well as biotechnology and other early-stage technology companies. The portfolios are expected to hold 25–40 stocks, with no single stock expected to make up more than 5% of the portfolio. 

The growth and dividend portfolios have similar sector exposures but differ in terms of market capitalisation. Overall, around 70% of the Growth Portfolio is invested in businesses with a market cap greater than £250 million (average £450.7 million). The Dividend Focus Portfolio has a bias towards smaller income-generative companies, with an average market cap of £353.6 million. Around 45% of the businesses within the dividend portfolio have a market cap above £250 million.

The dividend portfolio targets a yield of 2-4% per annum and monthly income payments – variable and not guaranteed.

All portfolio details shown below, including sector breakdown and performance, relate to the wider Growth Focus and Dividend Focus Portfolios, rather than the Responsible Investment Portfolios.

Growth Focus Portfolio - sector breakdown (%)

Dividend Focus Portfolio - sector breakdown (%)

Unicorn AIM IHT Portfolios - market capitalisation breakdown (%)

Examples of portfolio companies

Johnson Service Group – Growth Focus portfolio

Johnson Service Group (“Johnson”) provides workwear rental and laundry services across the UK and Republic of Ireland. 

The Group employs a workforce of over 6,000 and operates several distinct brands, providing everything from hi-vis overalls to luxury bed linen. 

In a recent trading update, the group announced expected revenues of £244.1 million for the six months to June 2024, up 13.5% on the prior period. Organic growth accounted for c.5.7% of this increase, with improved volumes in the Hotels, Restaurant, and Catering segment acting as the key contributor. 

Johnson Services Group has a current market capitalisation of £654.1 million (June 2024).

Bioventix – Dividend Focus portfolio

Bioventix creates, manufactures and supplies animal-derived antibodies to diagnose conditions ranging from vitamin D deficiency to coronary artery disease.

Antibodies are used to detect important biological markers, such as hormones or viruses, in patient samples. Traditionally, commercial antibodies are manufactured using white blood cells from immunised mice. Bioventix, on the other hand, uses sheep. 

Different species immunological properties mean animal model choice can have a significant impact on antibody production. In Bioventix’s case, its technology offers higher affinity, improved sensitivity, and a better ability to recognise ‘difficult’ targets.

The company has two revenue streams: direct sales and royalties (from customer diagnostic products). In the six months to December 2023, it grew revenues 13% to £6.7 million and profit before tax 16% to £5.2 million. A significant proportion of this growth came from increased physical product sales and associated royalties from Chinese customers. Past performance is not a guide to the future. 

Bioventix has a current market capitalisation of £229.7 million (June 2024).

Frontier Developments

As is to be expected, not all investments work out. One example is Frontier Developments. 

Frontier Developments is a leading independent development and publisher of video games based in Cambridge, UK. The company was founded in 1994 and has gone on to publish a portfolio of games including Elite Dangerous, RollerCoaster Tycoon 3, and Jurassic World Evolution.

Unicorn invested in the business in 2016 because of its attractive levels of revenue and earnings growth. For several years the company enjoyed a period of success, its share price rising from 230p in January 2016 to 3,400p in January 2021. However, the last few years proved more difficult as several new releases failed to sell as anticipated. This, combined with a growing cost base, led to earnings cuts in 2022 and 2023 and a sharp fall in the share price. 

Unicorn mitigated some of the negative performance by trimming its position and taking profits during 2021. However, the team concluded the company’s recovery potential was too uncertain and sold its remaining holding in September 2023. 

Performance

The Unicorn AIM IHT Portfolio Service was launched in 2016. The chart below shows the performance of the service over the last five years against a peer group of other AIM ISA portfolios available via Wealth Club. Like other IHT portfolios, this is a discretionary managed service so each portfolio is likely to be different. 

Five-year cumulative performance to 30 June 2024

Access to your investment

Investments in this portfolio are for the long term. However, if your circumstances change, you can sell some or all of your shares, although sometimes this can take a while depending on market conditions and liquidity. Withdrawals are subject to payment of the exit fee and market liquidity. Any amount you withdraw will no longer be IHT free. Withdrawals may result in a Capital Gains Tax liability unless held in an ISA.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. Those considering AIM Inheritance Tax portfolios should be comfortable with the significant risks of investing on AIM.

AIM IHT portfolios should only form part of a balanced portfolio. Your capital is at risk and you should not invest money you cannot afford to lose. If a service is managed by a small investment team, it could create key person risk. The fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan.

AIM stocks can be hard to sell, particularly at the smaller end of the market, and can be illiquid. AIM shares can be very volatile especially if the market falls sharply. The difference between the buying and selling price (spread) of AIM shares is often wider than the spread for shares listed on the main market. 

Eligibility for BPR, based on current rules, is assessed at the date of death and will depend on the companies in the portfolio remaining qualifying. Broadly speaking, you will need to have held a BPR qualifying stock for at least two years and still hold it on death to qualify. Tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

In recent months, there have been widely reported rumours that the government might change or abolish IHT. It is currently unknown if and when any decision might be announced.

Charges 

A summary of the main charges and savings for an investment within an ISA is shown below. If you wish to invest outside an ISA, please see the provider's documents. The investment may have additional charges and expenses: please see the provider documents for more details. If you would like a full breakdown or a personal illustration, please let us know.

Our view

Unicorn is an established fund manager with significant experience in both the AIM market and in managing UK small-cap portfolios. The team has been investing in AIM for over two decades and also manages the UK’s largest AIM VCT. 

Unicorn appears well placed to manage an AIM IHT Service, particularly given the strong overlap with its other investment mandates, which should provide the service with valuable perspective.

The investment strategy is uncomplicated, targeting established and profitable companies, preferably whose founders or management team have retained a significant stake in their business. 

Investors into the service have a choice between the dividend or growth portfolio, as well as responsible investment options for both.

Wealth Club clients also have exclusive access to the service for £20,000 (compared to £50,000 normally), making it a contender for this year’s ISA subscription. However, it should be noted that the portfolio’s fees are higher than some of its peers.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.