This week marks twenty years since the foundation of the Alternative Investment Market (AIM). AIM was started to provide a junior market with fewer demands on the companies that sought to list there, allowing them to access funding and eventually progress to the main market. It has, at least, succeeded in moving companies through: none of the companies which originally listed on AIM twenty years ago are still listed there today.
For an investor, there are different opportunities and risks from the main market. AIM offers perhaps a unique challenge after various similar markets around the world closed in the early 2000s. Companies listed on AIM tend to be young and growing. As a result, they can offer the opportunity of healthy returns if investors pick successful investments. They are also often the target of takeover offers (six of the original ten AIM stocks were eventually taken over), which usually result in good profits for investors.
However, the nature of the market also comes with risk. The less stringent listing requirements may allow through companies which should not be listed. However, the AIM authorities have developed the system of ‘nominated advisors’ (‘nomads’) who are responsible for keeping companies within the rules. Combined with a tightening of the rules since 2008, the nomad system has been relatively successful. The small size and specialized nature of many of the companies tends to mean a lack of liquidity in the shares which can result in increased volatility.
In addition to the variety of different investment opportunities offered by AIM, investors can also benefit from tax advantages. Of the various tax advantages, the most attractive are likely to be Capital Gains Tax holdover relief (allowing investors to defer paying tax on gains) and inheritance tax Business Property Relief, under which AIM shares may be liable for 100% inheritance tax relief. However, investors should remember not to ‘let the tax tail wag the investment dog’ and see tax advantages as secondary benefits to investing in already attractive opportunities.
AIM is still going strong after twenty years, and looks likely to continue providing interesting and profitable investment opportunities. However, investors should be careful when navigating this complicated market, and will likely benefit from consulting professional advisers who have researched stocks thoroughly before making an investment decision.
| Duration | 1-year | 3-year | 5-year | 10-year |
|---|---|---|---|---|
| AIM All-Share | 96.03 | 115.19 | 117.78 | 89.47 |
Source: Association of Investment Companies
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
