Resurgent AIM should be handled with care
The weekend of 4 and 5 August 2018 marked five years since AIM stocks became eligible for inclusion in an ISA.
A look at the performance of the FTSE AIM All-Share in the wake of this change displays the benefits of a move into the relative mainstream for the exchange – London’s foremost home for start ups.
As well as an initial surge as new money flowed into AIM companies, this junior market has also outperformed its mid-cap and large-cap counterparts, the FTSE 250 and FTSE 100, on a five-year view too.
Given these are larger, more mature companies which often offer income alongside capital gains the better performance of the AIM index in purely share price terms is perhaps unsurprising.
However the AIM All-Share has also done better than the FTSE Small Cap index which includes the smaller companies on the Main Market.
On top of that, AIM is a market more likely to reward a selective approach. The table shows three of the best performing AIM stocks of recent times. The average share price gain from this trio over the last half decade is close to 1,000%.
Clearly you can no longer afford to ignore AIM but at the same time it is important you are well aware of the risks when investing in this part of the market.
For every success story there will be several firms which have stagnated, delisted or even worse gone out of business.
In some respects, that is the nature of small cap investing, particularly as AIM has significantly more relaxed rules than the Main Market.
There is no minimum free float requirement (Main Market companies must have at least 25% of their shares available to trade in public hands), there is no formal minimum trading record required for AIM companies (compared with three years for a Main Market business), nor is there typically a requirement for AIM companies to have their documents pre-vetted by the London Stock Exchange of UK Listing Authority ahead of a flotation.
In addition, AIM companies are often not covered by research analysts, making it difficult to get reliable forecasts on future performance.
For this reason less experienced investors might feel more comfortable putting their cash to work on AIM with a professional fund manager.
One option could be Miton UK Micro Cap (MINI). Steered by a big advocate of AIM in Gervais Williams alongside his colleague Martin Turner, more than 80% of the portfolio is accounted for by AIM constituents. (TS)
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell Youinvest.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.