- Investment Insight
- 3 minute read
The Alternative Investment Market (AIM) was launched in 1995 to offer investors the opportunity to invest in smaller companies.
For all of AIM’s great attributes, it has struggled to keep pace with the returns generated from the Main Market since its launch 25 years ago. Sam Barton, Managing Director of the Close Inheritance Tax Service, shares three (of many) learnings from 17 years working with UK smaller companies.
1. Avoid bubbles
The value destruction after the dotcom and mining booms of 2000 and 2011 was hugely damaging to investors. There have been other, smaller bubbles form since (graphene, cybersecurity, AI) and the recent moves in hydrogen shares bear some of these hallmarks. The unprecedented stimulus we’ve seen this year will bid up some asset prices and cause bubbles too. Be wary of fads - avoiding misallocation of capital is key to protecting returns.
2. Do your research
Concentrating on a company’s management experience, financial position, and its cash flows will help minimise costly mistakes. Although fraud can be difficult to spot (Patisserie Valerie springs to mind), focusing on the fundamental attributes of a company is more important in the current environment than it has been for many years. This is easiest to achieve by sticking to what you know and always building in a margin of error for what you don’t.
3. Participate in the market
If you have concerns about a company’s corporate governance, vote at its AGM. AIM has made some big strides over the couple of years by mandating the adoption of either the QCA or FRC codes of governance. While this will make a difference, only through increased investor participation can some of the abuses of the past be avoided. Close Brothers Asset Management has, for some time, voted at all general meetings where the smaller companies team holds over 3% of a company. By taking a proactive stance on governance we are hopeful that AIM will continue to flourish and become an even better place for investors and dynamic companies alike – this is more important than ever in a post-Covid world, where ESG’s importance is likely to accelerate.
And finally, be patient and humble. Now is an opportune time to question everything afresh and not get caught up in hype. There are some wonderfully innovative and profitable companies on AIM which should reward your patience over time – as well as offering valuable tax reliefs such as business property relief.
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.
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.