Bloodstock investing is fairly niche but if you like a flutter on the horses here’s another way of doing it – although you will have to decide whether it’s any more profitable than trotting down to the bookies.
An ex jockey and established bloodstock (in this instance racehorses for breeding) agent has opened up investment in its foal purchasing business through an enterprise investment scheme (EIS).
Bloodstock investors are anticipating increased interest in the forthcoming 2019 foal purchasing season, as clients seek to diversify their portfolios amid gloomy economic forecasts for mainstream asset classes, according to JR Bloodstock Investments (JRBI).
It describes foal purchasing (a process named as pinhooking), normally carried out in the autumn of each year (foals to be nurtured and sold the following year for profit) as having generated healthy returns in recent years. JRBI typically buys between 20 and 30 foals each year.
It says for the 2017/2018 season, JRBI investors received net profits of 12% after the deduction of costs, sale charges and auction commissions. Previous year returns it says were 23% net return in 2016/2017 and 30% in 2015/2016. By comparison, it compares this to FTSE 350 (UK’s 350 largest companies) returns of -9.5% in 2018, 12.9% in 2017 and 16.8% in 2016.
JRBI advises that in September 2016 HMRC gave approval for Cill Dara Bloodstock Limited to issue shares under the EIS scheme. Cill Dara Bloodstock is the registered name of the company and the successful application was for the sole purpose of investment in the qualifying trade of trading in bloodstock. The company’s EIS status was extended in 2019.
Investors have the option to spread their investment across the entire portfolio of horses. The minimum investment is £25,000 and the initial investment period is between eight to 11 months.
JRBI warns that the value of a horse is affected by its pedigree and its physical appearance. The appeal of a horse’s pedigree will vary depending on the success achieved by its relatives or other sales results.
Investors are able to track the progress of their portfolio through JR Bloodstock Investment’s app called The Racing Manager. In addition, clients are sent regular reports, documenting factors which may affect the value of their investment.
JR Bloodstock Investment says it does not charge investors a management fee or commission for purchasing the horse.
Jamie Railton, managing director of JR Bloodstock Investment said: “The most important thing to us is consistency. In every single year we have been able to show a profit and there have been some spectacular high points.
“Most investors won’t be aware of this asset class, but it is just a question of educating people,” he says. “From our experience, it is healthy for investors to have a mixed portfolio, rather than just an expensive portfolio of high-end horses. Having a cross section diversifies the risk.”
JR Bloodstock itself does advise that bloodstock investing is a high risk asset class. “Animals may become injured or sick. In the case of death, all animals are insured.” It also advises that investors consultant a financial planner prior to investment and that, of course bloodstock investments are not regulated by the Financial Conduct Authority.
Patrick Connolly, chartered financial planner at IFAs Chase de Vere said: “While there can seem a good story for investing in alternative investments such as this, it is important that investors fully understand the significant downside risks. These investments are expensive, unregulated and illiquid, with potentially volatile performance and produce no income. We believe that the downside risks of these assets significantly outweigh any potential benefits and so don’t recommend any alternative or other ‘collectable’ or ‘hobby’ investments to our clients.”
Reminder: The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Benefits include income tax relief at 30%, tax free capital gains, full capital gains tax deferral on other capital gains for the life of the investment, loss relief and full inheritance tax relief on investments once held for two years.
Further reading: A guide to bloodstock investing