Thrill seekers should aim for the alternative investment market

Thrill-seekers should aim for the alternative investment market: you can win big (or lose it all) buying smaller companies.

Aim – the alternative investment market – comprises 765 companies. Sometimes described as a “junior” market, it has some big names.

Fashion group Boohoo, beverage mixer company Fever-Tree, Warehouse REIT – which has logistics units – and luxury confectioner Hotel Chocolat are all listed on Aim.

Yet despite the allure of these companies, the FTSE Aim All-Share Index has fallen 18% since the start of the year, in a descent that began before Russia invaded Ukraine. The FTSE100 is down just 5%, although the war has rocked global stock markets.

Aim investors enjoy generous tax breaks. But, despite this sweetener, some will see the index drop as a harbinger that a downturn could have a disproportionate effect on the outlook for Aim companies.

There are growing fears that soaring coal, gas and oil prices could push the economy into stagflation, which is a combination of inflation and recession.

Russ Mold of investment platform AJ Bell said: “This dreadful mix is ​​the fear that stalks the markets right now and the longer the war rages the more likely this scenario becomes.”

However, the current surge of interest in Aim funds suggests that investors, keen to support growing companies through economic ups and downs, remain willing to explore market potential.

Aim, who was considered an unruly teenager, is now considered to have reached a certain maturity, while still retaining the ability to shock. Shane Gallwey of Guinness Ventures compares Aim to Marmite.

“Some people won’t touch it. Others recognize it’s a growing market, which means there will be explosions – and big hits like Audioboom,” he says.

Shares of Audioboom, the podcasting group, have soared 365% over the past year, boosted by rumors of a bid from Amazon or Spotify – which would be rewarding for its biggest shareholder, the promoter real estate Nick Candy.

The rise of Audioboom recalls the requirement to have strong nerves. To make the most of what Daniel Gallagher of Killik & Co calls “Aim’s opportunities and challenges,” you need to take a five- or ten-year view.

You also need to do your homework. Fund Caliber’s Darius McDermott says, “Aim can have many well-run businesses. When it launched in 1995, you could list questionable stock with little more than a bad PowerPoint presentation. But it’s still a stock picker’s market. Lens specialists worry that some investors rely too much on tipster websites, although unsubstantiated rumors are a constant feature.

Last month, fashion retailer Asos moved to the main market to “enhance its business profile and recognition”, in other words to boost its share price.

Others are said to be on the way, although Aim is no longer seen as a stepping stone – good news for those who hold these companies for the tax breaks.

These concessions are a huge lure, although they have poured so much money into the market that even the threat of their withdrawal would affect stock prices.

Most Aim shares are exempt from inheritance tax if held for more than two years. There is no definitive list of eligible businesses, but finance and real estate are excluded. Income and capital gains tax exemptions are also available if you hold shares through an EIS (corporate investment scheme) or VCT (venture capital fund) .

Some fund managers, including Downing, Invesco and Octopus, offer IHT portfolios in Isa packaging. A small company or an Aim fund may be the answer if you don’t feel up to the task of stock picking. Jonathan Winton, fund manager of Fidelity UK Smaller Companies, sees this as his role.

“We have holdings in companies such as information and data specialist Wilmington and consultancy RPS Group, both of which have gone through a period of positive change, which is what we are looking for,” he says.

McDermott recommends specialist funds such as TM Stonehage Fleming Aim.

But smaller company funds can also offer exposure, as he explains: “The most notable offerings are Liontrust UK micro Cap, which owns 89% of Aim shares and LF Gresham House UK micro Cap, which owns 73” .

Another option is an Aim EiS such as those offered by Guinness Ventures. Gallwey says: “We close the scheme at the end of the fiscal year and then invest the money in around 20 companies. The minimum investment is £20,000.

Everyone involved in Aim emphasizes thrills and spills – exemplified by biotech group Synairgen. Its shares have lost 84% of their value this year following failed trials for its antiviral drug. Some investors will shrug their shoulders and hope for better. They are the kind of people best suited for Aim.

Advertising

Comments are closed.