Inheritance Tax Service
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Octopus Inheritance Tax Service – The latest from Fern Trading

4:54pm 1 Apr 2020 - Written by Rob Skinner, Head of Octopus Inheritance Tax Service

This update focuses on the latest valuation for Fern Trading Limited, the company that most investors in the Octopus Inheritance Tax Service own shares in.

As an unlisted company, Fern’s share price is not directly affected by short term market sentiment. Fern targets growth for investors that is predictable throughout the market cycle. It is a large and diversified trading group comprising 200 companies.

Every month, we undertake a valuation of Fern and recommend a share price to the Fern Board at which Fern is happy to issue new shares and Octopus, as discretionary manager of the Octopus Inheritance Tax Service, is happy to buy and sell shares on behalf of investors. We have done that again as usual to set the share price for the month of April (see appendix 1).

April share price

April share price

Fern operates a diversified business strategy, with just over half of its business comprising owning and operating renewable energy sites. The other half comprises a large scale secured lending business, fibre broadband businesses and operational healthcare infrastructure businesses. 

This week we were provided with the latest long-term energy price forecasts by two independent experts, whose views are utilised by the renewable energy industry more broadly. Combined, their long-term view of these energy prices is now lower than it was last quarter. 

As a result, we have slightly reduced the valuations of Fern’s renewable energy assets. The impact of this is a 4.0 pence reduction in Fern’s share price, or 2.5%.

Long term energy price forecasts have historically moved up and down and in a similar fashion, this has had modest positive and negative impacts on Fern’s share price in the past. We expect these kinds of movement to continue into the future as part and parcel of our renewable energy business. But the impact is mitigated (in both directions) very intentionally by the fact that renewable energy is only part of Fern’s business, and the other sectors which Fern operates across will perform independently, spreading shareholders’ investment across four headline sectors and hundreds of separate assets.  We believe the diversification of Fern’s business in sectors which are not directly correlated with each other or the wider stock market, is one of the attractive qualities of Fern for its investors.

Impact on value for investors

Impact on value for investors

This impact of this small share price reduction for most investors in Fern who have been invested for more than 12 months will be limited to a reduction in the amount of Octopus AMC (Annual Management Charge) accrued on their portfolio. As a result, the value of most investors’ portfolios post charges may not be reduced at all despite the reduction in share price.

This is due to the way our AMC is calculated and collected. It accrues during the entire period an investor owns their portfolio, and is only collected when an investor sells shares, and then only once the investor has realised 3% growth per year on average after this fee is taken into account. It is designed to smooth out short term volatility such as this, and align Octopus with our customers.

Outlook for Fern

Outlook for Fern

Despite the very unusual times we find ourselves in, business continues relatively unaffected across the Fern group. One of the reasons we operate a diverse business is that we are not limited to one sector, and can and will choose to divert Fern’s capital towards sectors that are most attractive at any time. 

My on demand webinar explaining more about the Service is available on this page if you search under ‘Octopus Inheritance Tax Service’ in the drop down. If you have any questions, please call us.

A reminder of the key risks

A reminder of the key risks

  • The value of an investment in the Octopus Inheritance Tax Service, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
  • The benefit of tax relief depends on individual circumstances. Tax treatment is assumed as per current legislation, which may change in the future.
  • Qualification for BPR depends on portfolio companies maintaining their qualifying status, which is assessed at the point a claim for the relief is made.
  • The shares of smaller and unlisted companies may be more volatile than shares of companies listed on the main market of the London Stock Exchange.
  • They may also be harder to sell.
Annual growth in Fern’s share price (discrete)

Appendix 1 – annual growth in Fern’s share price (discrete)

Apr- 19 Apr- 200.33%
Apr- 18 Apr- 196.64%
Apr- 17 Apr- 180.70%
Apr- 16 Apr- 175.58%
Apr- 15 Apr- 163.06%
Apr- 14 Apr- 154.82%
Apr- 13 Apr- 143.48%
Apr- 12 Apr- 134.07%
Apr- 11 Apr- 124.13%
Apr- 10 Apr- 114.13%

Past performance is not a reliable indicator of future performance.

Source: Octopus Investments, 1 April 2020. The performance data on this page shows the discrete annual growth Fern’s share price only since inception. It does not take account of initial fees, dealing fees or annual management charges associated with investing in the Octopus Inheritance Tax Service and should not be viewed as performance information for the Octopus Inheritance Tax Service. Performance is calculated based on the sale price for Fern’s shares at 1 April each year.