Five of the 10 best-performing investment companies in 2011 were venture capital trusts (VCTs), according to the Association of Investment Companies (AIC).

Although the VCT sector was down 3 per cent at the end of the year, the average investment company was down 11 per cent, in line with the drop in the FTSE All-Share.

Several sub-sectors bucked the trend though, with the VCT generalist sector and the specialist media, leisure and events sector up 0.5 per cent and 1 per cent respectively.

Despite ongoing turbulence in the market last year, Foresight VCT, which invests in technology companies, returned 51 per cent, making it the best performer over the year. It is up 81 per cent over three years, with Ben Thompson, marketing director of Foresight, putting good performance down to a ‘resurgence in M&A activity from US corporates’ in the technology sector.

Maven Income and Growth VCT 4 took second place, up 46 per cent over the year. Manager Bill Nixon cites ‘very good returns’ from the energy services and insurance sectors as drivers for growth.

Going forward into 2012, managers have a positive outlook on VCTs. David Hall, manager of British Smaller Companies VCT, comments that over the medium term, the sector has seen ‘consistent returns’.

‘The current environment sees good value with asset prices at the lower end and great medium-term growth prospects – that is quite a compelling combination,’ he says.

Nixon is more cautious, noting that the outlook for 2012 is ‘reasonable to good’.

He adds: ‘The market for funding new transactions is slightly perverse at the moment; whilst the economy as a whole and lack of capital in the banking sector is helping to keep vendor/owner pricing aspirations in check, competition for the better assets has increased and we have seen certain deals priced accordingly.’

Annabel Brodie-Smith, communications director of the AIC, says the longer-term performance record for the sector is ‘encouraging’.

‘It is also worth remembering that dividends on all VCTs are tax-free, and there are some attractive dividend yields across the VCT sector,’ she says, highlighting the fact that the generalist sector currently boasts an average yield of 7.6 per cent.