The AIM market came out of the blocks in 2017 like Usain Bolt, but it has been able to maintain its upward momentum all year. At the current 1,030.66, the AIM All Share index is about 22% up on where it began the year (844.41) and is just a fraction off its 2017 high of 1,045.94 (set on 7 November).
The last time it ended a calendar year at anything like this level was 2007, before the financial crisis, when it closed at 1,049.10.
The AIM 2017 performance has left mainstream stock market indices trailing in its wake; the FTSE All Share is about 8% up year to date, while small caps are about 14% ahead.
WHY HAS AIM RALLIED?
The stock market’s often smallest and typically riskiest companies are clearly in vogue. Some of this apparent new enthusiasm for the junior stock market is thanks to tax benefits that come with investing in AIM stocks. Yet Amati Global Investors' small cap fund manager Douglas Lawson believes company and sector specifics are having a much larger impact on performance.
‘Nearer-term, the recovery in many resources companies is having an effect,’ he explains. Oil, gas and mining companies on AIM are collectively worth in excess of £10.6bn, or 12.6% of the AIM All-Share’s combined £84.7bn market cap at present. Even more important is the influence of AIM’s very biggest companies.
WHO ARE THE LARGEST FIRMS ON AIM?
‘The top companies, ASOS (ASC:AIM), Boohoo (BOO:AIM), Fevertree (FEVR:AIM), Burford Capital (BUR:AIM) have done incredibly well,’ says Lawson.
Many experts believe there is an incremental shift from quantity to quality of companies on the AIM market. At the end of 2016 there were 982 companies quoted on AIM, down from a high of 1,694 at the end of 2007.
‘It’s difficult now to get an IPO (initial public offering) away if a company doesn’t tick lots of quality criteria,’ says Amati’s Lawson.
‘As well as the fairly obvious elements, such as management having a firm grasp of company financials and having a clear vision of where they want to take the business, UK investors would rather have lower growth with profits. It’s one of the differences with many fast growing US businesses.’
A large proportion of companies on AIM remain under-researched by analysts and largely overlooked. That gives private investors something of an edge, an opportunity for stock pickers to spot promising investments.
