Reasons for building a portfolio using AIM

Chris Boxall, director and co-founder of Fundamental Asset Management, considers why AIM can be attractive to investors in the first of a two-part series looking at the market. The second part will be published tomorrow.

Reasons for building a portfolio using AIM

AIM, London Stock Exchange’s (LSE) international market for smaller growing companies, is often misunderstood as an investment opportunity but it is well worth considering for investment returns and for inheritance tax (IHT) planning and it is relatively easy to build an AIM portfolio.

AIM is attractive for investment purposes for several reasons. It is home to a large number of highly profitable and cash generative founder/family controlled companies, many of which also pay attractive dividends. It is also a market for fast growing companies that offer opportunities to achieve superior capital growth.

AIM shares include famous and well-managed companies: household names like ASOS and, the online shopping retailers, Nichols, owner of the Vimto brand and Mulberry Group, the luxury fashion brand. Scores of other less well-known, but well-managed firms have delivered year-on-year capital growth and those fortunate enough to have invested in AIM quoted companies have enjoy exceptional investment returns since the tumult of the financial crisis.

Invest your ISA in AIM

Investing in AIM quoted companies for IHT planning purposes really gained in popularity following ISA rule changes in 2013 which permitted individual savings accounts (ISAs) to hold AIM shares for the first time. This sees AIM shares free from income tax, capital gains tax and, after just two years, in the case of qualifying companies for inheritance tax.

Investment in AIM for inheritance tax planning had, up to this point, been restricted to investors’ non-ISA money. This often resulted in a tax planning headache for investors, with the possibility that the sale of existing holdings for subsequent re-investment into qualifying AIM shares may have triggered a capital gains tax (CGT) charge. Investors therefore had to consider the impact of an immediate CGT charge compared with the possibility of a 40% IHT charge on the estate at a later date. Consequently, many financial advisers were reluctant to recommend AIM. The possibility of investing in qualifying AIM shares through existing ISAs avoided this conundrum.

Low interest rates encourage further

The period of low interest rates has also encouraged more investment in smaller quoted companies, many of which offer attractive dividend income. The growing maturity of AIM means a greater percentage of AIM companies offer some kind of dividend yield which compensates, to a certain extent, for the loss of income they might incur from moving out of blue chip stocks into AIM.

Research before investing

Successful AIM investment requires a large amount of research. Thankfully, there is plenty of publicly available information for prospective investors; it’s largely a matter of having time to digest it all and then patience as the investment thesis plays out.

All public companies have an investor relations section on their web site and AIM companies also have to conform with the so-called AIM Rule 26. This requires that they maintain a website which includes a large amount of information on the business and its shareholders and links to important company documents.

For newly-listed AIM companies the AIM Admission Document, available from the investor relations section of the company website, is essential reading for investors. This large document includes background information on the business, including prior years’ financial performance, director profiles and – importantly – key risk considerations.

AIM companies are obliged to issue their financial statements every 6 months as well as issue relevant trading updates. These are all published on the investor relations section of the company website and by the LSE and other 3rd party news providers.

Broker research

Every AIM company is also obliged to have a Nominated Adviser (‘Nomad’) and broker. While separate roles these are generally undertaken by the same firm.

The Nomad guides the company through the AIM admission process and its subsequent life as a public company, ensuring compliance with LSE rules. The broker assists the company in raising capital and makes a market in its shares, also introducing the company to appropriate institutions and other prospective investors.

The company’s broker also publishes research on its client’s business, including financial forecasts. While this research is not generally distributed to private investors the forecasts will be picked up by online financial news consolidators and publishers who in turn make it available to private investors. Evidently, this is not independent but it does provide valuable information on the company and its prospects and helps all investors, private and institutional.

Plenty of free comment

There is also plenty of free comment on AIM shares on financial news sites and so-called ‘Bulletin Boards’ where private investors offer plenty of opinion. While there is a lot of valuable objective comment on the latter there is also a lot of questionable material, much of which is of little value.

We would urge investors to undertake their own independent research and not be swayed too much by the opinion of others.


Chris Boxall is director and co-founder of Fundamental Asset Management    

Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. 

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