- Investment Insight
- 5 minute read
The Alternative Investment Market (AIM) was launched in 1995 to offer investors the opportunity to invest in smaller companies. At launch, AIM comprised of 10 companies valued collectively at £82.2 million1. Twenty-five years on, there are currently ~830 companies listed on the market with a collective market value of almost £100 billion1. However, investors have historically been nervous about investing in AIM due to myths, misconceptions, and misunderstandings; here, we answer some of the challenges the market faces.
Myth: AIM is unregulated
AIM is a regulated market, though those regulations differ from those that apply to the premium listing of the main market and are sometimes less stringent. There are firm corporate governance rules in place, and a variety of committees and institutions gatekeeping the market. AIM is owned and operated by the London Stock Exchange and it is subject to the UK Market Abuse Regime, with the majority of companies subject to the rules of the UK Takeover Panel and the provisions of the Companies Act. The reputation of AIM companies as ‘risky’ seems to come largely from the media. However, when AIM companies have hit the headlines, as often as not this has been down to the quality of audit as opposed to a failure of regulation. This has also impacted companies on the main market (think Tesco and Carillion), but larger firms tend to have the financial resources to emerge from such scandals relatively unscathed.
Myth: AIM is UK-centric and non-diversified
Around a quarter of the companies listed on AIM are domiciled outside the UK, with headquarters as far afield as the US and Australia1. Furthermore, over the last decade AIM companies have grown their overseas sales from £7 billion in in 2010 to £12.4 billion in 20192. Many of the investors in AIM are also global institutions – over 80% of ASOS investors were based outside the UK in 20183, for example.
Myth: All AIM companies are young and high-risk
The market was designed for younger companies, but AIM is now 25 years old. The average market cap is around £120m, and around sixteen companies have a market cap of over £1bn1, including household names like ASOS, Fevertree Drinks and Boohoo Group. The wide range of companies means that investors can pursue different investment strategies within AIM, from high-growth to risk averse. Of course, there are young growth-oriented companies on the market, but some constituents have been in business for hundreds of years, including James Latham and James Halstead, whose family shareholders benefit from listing on AIM as it provides liquidity and tax efficiency.
Myth: Tax efficiency is the only reason to invest in AIM
AIM became eligible for ISA investments in 2013, protecting investors from income tax and capital gains tax – this led to a swift spike in AIM company valuations. Stamp Duty isn’t applicable on AIM shares, and most companies qualify for Business Property Relief (BPR) meaning that relief from Inheritance Tax (IHT) is available once the shares have been held for over two years. However, less than 4%4 of assets on AIM are in a tax-based investment solution from one of the main providers. This implies that AIM’s tax status is a secondary consideration for investors, with more weight given to the fundamental attractions of AIM companies. The Numis Alternative Markets Index has returned 16.2% over the five years to 30 April 20205, and dividends paid by AIM companies burst through the £1 billion mark for the first time in 20186. This, combined with protection from IHT and the steady stream of companies floating on AIM, grants investors access to exciting investment opportunities they otherwise may not have considered.
Close Inheritance Tax Service
Close Inheritance Tax Service (CITS) is a specialist, discretionary investment management service designed to provide accelerated relief from Inheritance Tax (IHT) by investing in Business Property Relief (BPR) qualifying shares quoted on the Alternative Investment Market (AIM) and the Aquis Stock Exchange Growth Market (AQSE).
CITS is one of the longest running AIM-based IHT services with a successful track record. Since its launch in March 2001, it has proved effective in protecting the value of clients’ estates from IHT.
1London Stock Exchange Group as at May 2020
2Grant Thornton AIM report as at June 2020
3ASOS as at December 2018
4Financial Times, “Inheritance tax Isas — a recipe for disaster?” published on 8 March 2019
5Close Brothers Asset Management, and Numis Securities as at 30 April 2020
This article is only intended for use by UK investment professionals and should not be distributed to or relied upon by retail clients. Please note there is no guarantee that the CITS investment objective will be achieved. The value of investments will go up and down and clients may get back less money than they invested. Past performance is not a reliable indicator of future returns. The information contained in this document is believed to be correct but cannot be guaranteed. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.
CITS is a tailored discretionary investment portfolio management service that invests in both the Alternative Investment Market (AIM) and the Aquis Stock Exchange Growth Market (AQSE), with the benefit of major tax advantages introduced by the Chancellor of the Exchequer in his budget of March 2000. CITS is an Inheritance Tax mitigation service based on current tax law and practice. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future. CITS invests in ‘qualifying shares’ in smaller companies which may be more volatile than investments in more established companies. Such companies can be subject to certain specific risks not associated with larger, more mature companies. Consequently this can make the CITS portfolios more volatile as the value of an investment may fall suddenly and substantially. CITS is considered suitable only for informed and experienced investors.