Celebrating 25 years of AIM

Posted by Adrian Lowcock in Latest insights category on 19 Jun 20

AIM was set up as a sub-market of the London Stock Exchange for fledgling companies to access cash. It has grown from 10 firms in 1985, with a total market value of just £82.2m, to being a home for more than 800 companies worth £100bn+. Today some of these firms are worth more than £1bn.

The success of household names such as ASOS, Boohoo and Fevertree shows that AIM has become a legitimate and profitable source of investments.

In its early years, AIM acquired a reputation for housing highly speculative companies whose share prices rose dramatically and then fell to earth. During the dotcom bubble a swathe of fast-growing AIM firms went into administration and unfortunately took investors’ money with them.

However, while there have been highs and lows for individual companies, AIM has proved to be a tax-efficient home for fast-growing smaller companies.

The success stories

ASOS floated on AiM in October 2001 and since then has become one of the UK’s greatest e-commerce success stories. Launching at 20p, ASOS’ share price peaked at £76 before coming back down to around £30 – still a startling return for those who got in early.

Boohoo is another online retailer that has also gained success since floating on AiM. Since listing in 2014, its shares have risen more than 490% to over £4, at the time of writing.

Fevertree has delivered an even more impressive return, with the tonic water maker’s shares growing by an impressive 1100% since it floated in 2014.

The failures

Affinity Internet floated near the height of the dotcom boom, in April 1999, at £12.75 million. The shares peakled at almost £80, before going bust in 2003.

Langbar International which floated on AiM in 2003 as a cash shell. The share rocketed, however, the business collapsed when it couldn’t confirm the existence of £370m it said it held in a Brazilian bank.

Globo, the telecoms firm, entered administration in late 2015 and was investigated by the SFO for market abuse, accounts falsification and insider dealing.

Risks and Benefits of investing in AIM

Investing in the AIM market is not for everyone. It  is less tightly regulated than the main market of the London Stock Exchange which reduces the costs for companies looking to float. This makes it easier for them to raise capital at an earlier stage in the business, but it also means there is a greater risk of mismanagement or fraud.

The ease of access means AIM attracts smaller companies in the early stages of their growth. Investing in smaller companies is riskier, their shares are less liquid and companies don’t have access to as much capital as larger businesses. With many AIM stocks at the early stage of their development, there is the risk that management cannot grow the business or the business model itself is not successful. In return for this risk is the potential for greater returns if a company is successful.

Smaller companies markets are volatile and share prices can swing widely, driven by market sentiment and not necessarily fundamentals. High levels of volatility won’t appeal to everyone and investors need to be willing to invest for the long term, at least 5 years.  

There are some tax benefits from investing in AIM. Some AIM shares, if they are held for two years, are exempt from inheritance Tax through Business Property Relief. Also, there is no stamp duty to pay when you buy AIM shares directly.

Who should invest in AIM

Patience and a high-risk tolerance are often needed when investing in an adventurous market such as AIM. Anyone who wants to gain exposure to smaller companies but doesn’t have the expertise to pick stocks should consider investing via a fund. 

The AIM market is very well suited for funds as a diversified approach will help reduce the risks. On our Focus 50 list, we include the Morningstar gold-rated Merian UK Smaller Companies. Merian has one of the most highly regarded small and mid-cap teams, headed by Dan Nickols who is the manager of this fund. His fund holds AIM companies such as Boohoo and Gamma Communications in its top 10.

The Morningstar bronze-rated Franklin UK Smaller Companies fund invests in small companies both on the main market and AIM.  AIM Holdings include Restore, Dotdigital and computer games maker Codemasters Group.

Finally, if you prefer to invest directly in AIM shares you can search here. We currently have a restricted list of companies, but will be adding more soon.