June marks the 20th anniversary of the AIM market, and there have been some stellar success stories, not least Abcam, ASOS, CVS Group, EMIS and First Derivatives.
The Association of Investment Companies (AIC) has published a list of conventional investment companies with significant exposure to AIM.
Even so, the overall figures for the FTSE AIM All-Share make sobering reading.
But successful investment company stock pickers in AIM have achieved far better results, with the comparative outperformance of the VCT AIM Quoted sector illustrating the value of good stock selection:
Share price total return on £100 to 31 May 2015
Beyond the VCT sector
Lowland Investment Company has doubled AIM exposure over the last five years to 10% of total assets. Laura Foll, Deputy Fund Manager, Lowland Investment Company said: "AIM often gets bad publicity for its poor long-term performance or corporate governance issues, but over time some of our best performers in Lowland have come out of AIM, such as Scapa and Johnson Service Group. Given many managers desire for liquidity, the area often gets overlooked and this presents an opportunity for those willing to do the work. Many of these companies held are established, profitable businesses with good opportunities to grow sales and earnings and yet trade at a discount to their larger cap peers."
Bucking the wider economic trend
Diverse Income Trust has 35.5% of its assets exposed to the AIM market, second only to Artemis Alpha at 40%. Launched in April 2011, Diverse Income Trust is up 97% over three years to 31 May, outperforming its sector average, the UK Equity Income sector, by 29 percentage points. It is up 8% over 1 year, in line with its sector average. Such is Gervais Williams' confidence in AIM, he thinks it could go on to be the new Nasdaq.
Commenting on AIM, Gervais Williams, Manager, Diverse Income Trust said: "During the wide ranging growth of the credit boom, many investors narrowed their investment universe. In the future, in a world where growth is scarce, it will be necessary once again for investors to expand their opportunity set. Many AIM companies have the ability to buck the wider economic trend due to their greater growth potential on account of smaller scale. As a multi cap portfolio The Diverse Income Trust has taken full advantage of its wider investment universe alongside good dividend growth which we believe is sustainable. AIM could well turn out to be the next NASDAQ."
Unearthing the companies of the future
Standard Life UK Smaller Companies investment trust has 25% AIM exposure and has outperformed the wider UK smaller companies sector by 191 percentage points over 10 years, up 456%. Harry Nimmo, Manager, Standard Life UK Smaller Companies said: "The Alternative Investment Market is undoubtedly a more mature and better balanced market in terms of sector exposure than it was ten or more years ago, while still retaining its growth and development market character. Careful stock selection can unearth the large companies of the future. Many AIM listed stocks have been highly successful for our Smaller Companies Funds such as ASOS (online clothing retailer), Abcam (online antibody distributor), EMIS (GPs office software), First Derivatives (financial software) and CVS Group (Vet Practices) amongst our most successful.
"AIM has undoubtedly been a success story for small company development, our investors
and employment and wealth creation in the UK. In many ways it is unique in its scope and should be fostered."
BlackRock Smaller Companies has 29% of total assets invested in AIM, whilst BlackRock Throgmorton Trust has 24% exposure to AIM. BlackRock Smaller Companies has outperformed the UK Smaller Companies sector over 5 and 10 years, up 209% and 424% respectively.
Mike Prentis, Portfolio Manager of BlackRock Smaller Companies plc and BlackRock Throgmorton Trust plc said: "Our approach to AIM listed stocks is no different to fully listed stocks. Generally we like well run, market leading businesses which have strong records of earnings growth and cash generation and have strong balance sheets. We like companies whose main source of growth has been organic. This has allowed us to make investments in companies such as CVS Group, the veterinary surgeries business, Restore, the document storage business, and Advanced Medical Solutions, the leading provider of wound care and closure products.
"AIM is often associated with resources and technology companies and we do selectively invest in these. We have owned shares in Gemfields, who mine emeralds and rubies, and meet our tests in terms of management quality, market leadership and profitability. Within the technology space we have investments in companies such as EMIS, SQS and First Derivatives. There have been some excellent IPOs on AIM, FeverTree Drinks being one that has served us well in recent months."
Thomas Moore, Manager, Standard Life Equity Income, which has 11% of its assets exposed to AIM said: "AIM has proved to be a rich vein of dividend growth for shareholders in the Standard Life Equity Income Trust."
AIC Members with 10% plus exposure to AIM – share price total return on £100 to 31 May 2015
*AIM exposure provided by investment company managers based on latest available information
Sector average performance comparison – share price total return on £100 to 31 May 2015
The AIC will be issuing a separate update on the VCT AIM Quoted Sector