As the AIM index celebrates its 22nd year of existence Richard Stone, Chief Executive at The Share Centre, comments on the importance of personal investors having the opportunity to access and research smaller and medium sized companies that are fuelling the UK economy:
Investing and share ownership can be fun and enjoyable. For personal investors this is particularly true when investing in smaller companies, the likes of which are found on the AIM market which is today celebrating its 22nd birthday.
Personal investors love to research smaller companies, find out what makes them tick and understand the potential they have. The internet has opened up these research possibilities like never before and the AIM market is one which is relatively unloved by institutional investors, discretionary fund managers or advisors and so personal investors feel their good research can give them an edge.
Personal investors find it hard to gain access to these potential gems through the elements of their portfolios they have with discretionary or advisory managers – not least because the compliance departments of those managers will often steer them clear of making recommendations in this higher risk market. So many thousands of personal investors enjoy doing their own research and venturing into this market on their own account.
At The Share Centre we are strong advocates for personal investors and are keen to support this desire to access those companies on AIM. We campaigned hard for AIM stocks to be allowed into ISAs and in the year after that change was made we saw a 35% uplift in the number of AIM trades we undertook. 25% of all our trades are in AIM stocks, and with the top 10 AIM companies now each worth more than £1bn and therefore comfortably of a size which would warrant inclusion in the FTSE 250 at least, this is not all at the very small or micro-cap end of the spectrum.
The AIM market also fills a vital role in helping UK Plc prosper by bringing together investors and earlier-stage or smaller companies and giving them access to capital. It is those small and medium sized enterprises, not the large FTSE 100 global enterprises, which will be the generators of employment and GDP growth in the years ahead.
The AIM market is not perfect. AIM investing does come with higher risks, particularly around liquidity, share price volatility, more companies that are not yet profitable and a greater risk of corporate failure. We continue to campaign for greater personal investor access to secondary market placings. All too often these market placings happen overnight at a discount to the market price and personal investors are left having to accept dilution of their holdings without an opportunity to participate.
Liquidity can also be an issue for personal investors, especially in scenarios as we’ve seen last week with Fusionex, where companies’ shares are suspended or a decision is taken to delist the company from the market. This can leave personal investors marooned in an untraded and untradeable position.
It is easy to be critical, but in general personal investors understand the risks and are typically making these investments as the riskier element of a more balanced portfolio. They also understand the binary nature of some of those risks and like undertaking the research to determine whether that binary risk is worth taking – for example, will a particular oil and gas exploration company make a successful discovery or not? It is also worth remembering that compared with other means of investing in early stage companies – for example through crowdfunding providers – AIM does provide liquidity, corporate governance standards, and if shares are acquired through a broker such as The Share Centre, then investment servicing including regular valuations and access to research.
In addition to the risks, personal investors also appreciate the benefits of trading in AIM stocks. For example, no stamp duty to pay when buying the shares and they are free from inheritance tax. The potential for higher gains, in addition to the increased risk of loss, also means that sheltering those gains from capital gains tax is attractive hence the increased propensity we have seen to trade AIM stocks within ISA wrappers.
Overall as AIM celebrates its birthday there is much to welcome and be grateful for. Personal investors have really engaged with the market and the opportunity it presents to access the smaller and medium sized companies that are fuelling the UK economy. It’s not perfect and the occasional example of sharp practice or corporate failure does not help. However, in general it works well, has helped connect capital with firms that need it, and personal investors engaging with those companies understand the higher risks and embrace those alongside the substantial tax benefits available. As such AIM investing plays an important part in many personal investors’ portfolios.