Read more

Alternative Investment Market launched 24 years ago

Small is beautiful, so the saying goes, but investing in fledgling companies often requires nerves of steel.

More than 3,800 smaller businesses have listed on the London Stock Exchange’s Alternative Investment Market (AIM) since its launch in June 1995, raising more than £113bn in development capital.1

Sometimes referred to as the ‘Wild West’, AIM is the international market for smaller growing companies, including early stage and venture capital-backed businesses. More established companies also often join AIM seeking capital to help them expand.  

Recent listings on AIM include all-day café bar operator Loungers, which owns 146 bars under the Lounge and Cosy Club brands. The group plans to continue to open around 25 new bars each year over the medium term and raised £83.3m through its initial public offering (IPO) at the end of April.2

Understanding the risks

The main appeal of AIM companies for investors is that they could end up being the next big thing. But, of course, there’s a big risk they might fail, leaving investors nursing potentially painful losses.

Companies looking to list on AIM don’t need to have trading records, nor do they have to have a minimum market capitalisation, so some of those which do list have only been around for a very short time.

The early years of AIM saw plenty of dot-com companies list on the sub-market, only to disappear when the technology bubble burst at the turn of the century. However, the market is currently thriving, with the fact that many big names have opted to remain on AIM rather than moving to the main market enhancing its reputation.

AIM has further been helped by government measures, particularly the move in August 2013 to allow AIM shares to be eligible for inclusion in tax-efficient individual savings accounts (ISAs). This means investors holding AIM shares within an ISA don’t have to pay any capital gains tax on profits, nor do they have to pay any tax on dividends.  

Most AIM stocks are also exempt from inheritance tax if they’ve been held for more than two years, further boosting their appeal.

Success stories

One of AIM’s biggest success stories is drinks mixer company Fevertree, the largest company on the junior market, with a market cap of more than £3.5bn. This compares to a market cap of £154.4m at its IPO price of 134p in November 2014. Fevertree has just expanded into bottled gin and tonic drinks, having worked with Thames Distillers to find gins that will complement its mixers.3

It’s been far from plain sailing, however, for investors who’ve had to endure plenty of ups and downs, particularly in October last year when Fevertree’s shares fell by 30% before Christmas demand for the mixers helped push the share price up again.4

For every success story, however, there have been numerous failures. Of the nearly 4,000 companies have listed on the junior market over the past 24 years, less than a quarter of these are still trading5 - a stark reminder that investing in AIM shares definitely isn’t for the faint-hearted.

References

1 London Stock Exchange, AIM statistics, May 2019

2 Morningstar, Bar chain Loungers targets £83m raise through AIM listing, April 2019

3 The Spirits Business, Fevertree to release bottled gin and tonic drinks, May 2019

4 Fool.co.uk, Is Fevertree's share price a bargain after falling 30%, October 2018

5 Bloomberg, Settling the wild west: companies put down stakes on UK's AIM, May 2019

 

For professional clients only. Not to be relied on by retail clients. This communication does not constitute an offer to buy or sell any AXA Investment Managers group of companies’ product or service and should not be regarded as a solicitation, invitation or recommendation to enter into any investment transaction or any other form of planning. The views expressed do not constitute investment advice, do not necessarily represent the views of any company within the Group and may be subject to change without notice. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Issued by AXA Investment Managers UK Limited, authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX.