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What drove AIM’s outstanding performance in 2020…

London’s AIM market had a remarkable 2020, ending the year with its market value at an all-time high and with the AIM index also significantly outperforming other UK main market indices. But what drove this remarkable performance in such a challenging year?

AIM closed 2020 with 819 companies and a total stock market value of £131 billion. While there was a net decline of 44 companies from 2019, the overall market value was £16.9 billion higher.

The AIM index continues to be dominated by relatively few large companies, with AIM’s twenty largest companies valued at £45 billion, representing 34% of the total value of AIM. At the end of the year there were a record 24 AIM companies valued at more than £1 billion each, compared to only 16 at the end of 2019.

With its shares up 42% in 2020, ASOS closed the year as AIM’s largest company, valued at £4.8 billion, having assumed the crown from online fashion rival Boohoo Group, which came in second, valued at £4.35 billion, despite attracting criticism for poor working conditions at its suppliers and questionable corporate governance.

AIM’s Leisure Goods sector was another beneficiary of the pandemic seeing its value soar £3.7 billion to £7 billion, driven by strong trading from video gaming companies, three of which were valued at more than £1billion each at the year end, with Codemasters Group not far behind.

AIM unfortunately looks set to lose Codemasters as it is being acquired by US giant Electronic Arts. It will be a shame to see another fast-growing UK company acquired by an overseas rival, but this is very much the nature of AIM, with UK shareholders seemingly unwilling to back the longer-term growth opportunity.

Having attracted little attention for many years, many of AIM’s small healthcare companies were quick to develop tests for Covid-19, subsequently benefiting from explosive demand and share price growth.

The value of AIM’s Healthcare related companies, encompassing the sub-sectors of Medical Equipment and Services and Pharmaceuticals and Biotechnology, rose £5 billion in value to £17 billion.

There were big moves from anything involved in Covid-19 testing and vaccine development, with companies in these areas adding £1.6 billion of market value. The Healthcare sector also brought AIM’s top performer in the year in Novacyt, which received large orders from the UK’s Department of Health for its Covid-19 tests, helping to lift the shares over 6000% in the period.

With many countries (and notably Germany) getting behind hydrogen as an alternative to natural gas, there was growing interest in hydrogen-based energy, which is being pushed as a solution to fill the energy gap left from the impending closure of nuclear and coal-fired power stations.

AIM has several hydrogen fuel cell companies, whose shares soared over the course of the year, despite the challenges of the pandemic, adding £5.9 billion in market value to the Alternative Energy sector. Both ITM Power and Ceres Power closed the year valued at more than £2 billion each, with shares of the former up 600%.

AIM’s Technology sector consisting of 113 companies, encompassing the sub sectors of Software, Hardware and Telecommunications related activities, proved extremely resilient with its value rising £4 billion to £18 billion.

AIM’s outperformance relative to the main UK market was driven by the latter having no exposure to video gaming and hydrogen fuel cells, two sectors seeing exceptional share price gains, and relatively little pure exposure to niche software, technology and online retail. The UK main market also continues to suffer from a distinct lack of growth!

Please join us at our next Adviser Webinar where we will be considering potential AIM themes to follow in 2021. 

Click the picture below to register for the session.

 You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.

We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.


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AIM on platform.. why wouldn’t you?

Last year’s unwelcome introduction of Covid into our everyday lives saw several trends and behaviours emerge. Family solicitors are seeing a significant increase in requests for will writing. And financial advice is no different, with financial advisers seeing an increase in demand for Inheritance Tax Planning (IHT) solutions.

Historically, IHT solutions had only been available directly with investment managers, with advisors forced to direct assets off their designated wrap platform in order to access these. This can be to the detriment of advisers and their underlying clients, as it makes management and monitoring, among other things, more difficult.

Adviser platforms have now evolved to allow clients to invest in individual stocks, including those listed on AIM, the London Stock Exchange’s smaller companies growth market. Many (but not all) AIM shares qualify for Business Relief, which means that if they are held for two years and until death, the holder of the shares is able to mitigate 100% of their potential IHT bill.

Platforms further evolved to allow Discretionary Fund Managers (DFMs), such as Fundamental Asset Management, to manage portfolios of AIM stocks on platform on behalf of clients. This means you can offer AIM for Inheritance Tax planning solutions to your clients and keep their assets in one place, thereby retaining the benefits a platform has to offer.

But what are the benefits?

Costs

Platforms have grown to become the dominant force in asset administration for retail clients and financial advisers in the UK. They are in a formidable position to take advantage of scale in terms of pricing. This is something they do well, allowing clients to benefit from reduced dealing, product, custody and investment costs.

Investments

Investment options for retail clients can often be limited due to the small amounts they are generally looking to invest. However, the growth of platforms has effectively made them the key distribution method for investment managers in the UK. As well as being able to negotiate preferential fees, they can give clients access to investment products they would not normally be able to access by going directly. As a result, clients benefit from a wider pool of investment options at a cheaper price.

Administration

Platforms in their most basic form are a technology which allows a financial adviser to retain and manage assets on behalf of their clients. Advisers benefit from being able to manage everything in one place, reducing time on administration and allowing for more time to be spent with clients. The platform technology itself allows advisers to take advantage of an advanced reporting system. On top of this, platforms are increasingly evolving to support and integrate adviser back office systems, including client portals. Platforms also facilitate custody which removes an element of risk from an advisor’s business model.

The benefits are clear for clients and advisers. However, platforms are also beneficial for investment managers like Fundamental.

The ability to manage client portfolios in one place and to remove custody risk from our own business model is a key advantage. As such, we are committed to the IFA and platform markets and work closely with our platform partners, including Standard Life Wrap, Elevate, Nucleus (listed on AIM), Transact, Ascentric, Funds Network and CoInvestor.

Enjoy your weekend!

Derek McLay; Business Development Manager; 077437 25659/ [email protected]

Join me and the Fundamental Asset Team at our next adviser webinar where we will be discussing another record-breaking year for AIM and what could be in store for 2021. 

Click the picture below to register for the session.

You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.

We also have an Adviser Centre with a wealth of information to support financial advisers including case studies, adviser webinars, guides and contact details.


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AIM is fast maturing into a grown-up stock market

An article in the Daily Telegraph’s popular Questor column commented on the encouraging evidence of AIM’s centre of gravity tilting away from the ‘get-the-founders-rich-quick outfits’ towards real, well-run businesses with bright prospects.

Telegraph subscribers can read the article here, alternatively, Yahoo! Finance has also kindly provided a free to read version here.

AIM’s fabulous performance in 2020 certainly suggests London’s growth market is indeed a very different proposition to the one we first started investing in for Inheritance Tax planning purposes back in 2004.

AIM ended 2020 with its market value at an all-time high of £131 billion. A record 24 AIM companies were valued at more than £1billion each at the year end and 246 AIM companies were valued at £100m or more, the majority of which were in the £100m – £250m valuation bracket.

After rising 10.1% in December, the AIM index finished 2020 up 20% for the year, an amazing achievement in the circumstances and significantly outperforming the main UK index of 100 stocks in the year, which fell 15%. Specialist research house Equity Development commented how this must be “the biggest one-year differential in AIM’s 26-year history”.

But this was not just a flash in the pan and over the 5 years to the end of December 2020, the AIM All share index has risen 60% whereas the main UK market is up only 11%. We acknowledge that this excludes dividend income, and the main UK market has yielded over 4% per annum over this period. However, as commented on by our associates Investor’s Champion in an article here, 2020 highlighted the fragility of dividends for highly geared companies on the main UK stock market, many of whom have been forced to cut or postpone dividend payments.

As individuals own 25.1% of AIM companies, against just 11.3% of FTSE 100 companies (source: “Ownership of UK shares, UK Government, January 2020”) UK private investors will have benefited very nicely from this outperformance.

It is also worth emphasising that to benefit from the Inheritance Tax planning reliefs, individuals need to own the qualifying AIM shares directly in a segregated portfolio in their own name i.e. the tax benefit cannot be gained through investing via a collective/fund structure. Fundamental Asset Management’s AIM portfolios can also be accessed through a number of adviser wrap platforms.  Our Document Library and Adviser Centre has a wealth of information on investing in AIM Inheritance Tax portfolios.

While it was a poor year for new issues/IPOs, with only 32 new entrants raising £486m, AIM saw a large number of secondary fund raises with a total of £5.27 billion raised, making 2020 the best year for secondary issues since 2010.

Not as illiquid as people think!

The average daily value of AIM shares traded also hit all-time highs at £326m, an increase of £91m per day on 2019. Trading volumes remained strong with c £83 billion of shares traded in the year as a whole compared to c£60 billion in 2019. Those are big numbers (for private investors at least!) and counter the argument that AIM shares are illiquid.

ASOS (LON:ASC) remained the largest company by market capitalisation with a year-end valuation of £4.8bn, ahead of online fashion rival Boohoo Group which was valued at £4.3bn.

Although there has been steep drop in the number of companies on AIM, from a peak of 1,694 in 2007 to only 819 at the end of 2020, the quality of companies is far higher.

You can find out more about Fundamental Asset Management’s high performing AIM IHT ISA and AIM Inheritance Tax portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.


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CoInvestor Virtual Manager Showcase

Listen to our Business Development Manager Derek McLay give an 8 minute pitch on what makes Fundamental Asset Management different at the CoInvestor Manager Showcase on 15th December 2020.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years. You can find our latest factsheets, from the link here.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Thank you for watching, The Fundamental Asset Team