The AIM ISA – 10 years and counting!

It’s 10 years since ISAs were allowed to hold AIM shares for the first time. So how has AIM changed over this time and why was the change in ISA rules so relevant for AIM?

A significant moment in the history of AIM

The change in ISA rules on 5^th August 2013 to allow ISAs to hold AIM shares encouraged many UK investors to allocate a larger element of their investment portfolio to AIM than had been the case up until then, both through ISA transfers and the annual ISA allowance.

This change in the law, also opened a new opportunity for investors to start Inheritance Tax (‘IHT’)  Planning with their ISA, through investing in the shares of Business Relief qualifying AIM companies (formerly Business Property Relief or ‘BPR‘).

ISA transfers of greatest relevance

The ability to transfer an ISA was particularly relevant, as it avoided the Capital Gains Tax restrictions many investors faced beforehand when considering selling out of main market shares or collective investment schemes and moving into AIM shares.

You can transfer unlimited amounts from existing ISAs, however, the maximum that can be subscribed to an AIM ISA in a given tax year is determined by the ISA allowance at the time – currently £20,000 per individual per tax year.

How has AIM changed over this time?

Having peaked at approximately 1,700 companies at the end of 2007, by the end of July 2013, the number of companies had fallen to 1,086, with a total market value of £64.2 billion and an average market value of each AIM company of just over £59m. Despite the steep fall in the number of companies, thankfully there was a big improvement in quality.

AIM’s largest company in 2013, valued at £3.9 billion, was online fast fashion pioneer ASOS, which has recently moved to the main UK stock market. Only six AIM companies were valued at more than £1 billion, four of which were from the oil and gas sector.

New admissions offer glimpse of risk and rewards of AIM

July 2013 saw 15 new admissions to AIM, whose progress offers a glimpse of the risks and rewards on offer to those investing in AIM companies.

The new admissions in July 2013 included Conviviality Retail (Market cap on admission £87m), Frontier Developments (£48m), Keywords Studios (£59m) and Plus500 (£137m).

Conviviality, a wholesaler and distributor of alcohol, fell into administration at the end of March 2018, less than 5 years since joining AIM, after a series of disastrous acquisitions and profit warnings. Earlier in the year and well before its final demise, our associated research site Investor’s Champion highlighted concerns with Conviviality in this article here ‘Conviviality – plenty of red flags to concern shareholders!’. Led by an over ambitious CEO, whose remuneration structure was poorly aligned with outside shareholders, unfortunately it was just the sort of failure we came across all too frequently in the earlier days of AIM.

Thankfully things have improved considerably on AIM since then and it has also been far better news for shareholders in several of the other new arrivals from July 2013.

While shares in Frontier Developments have fallen back sharply over recent months, by April 2021 this video game developer carried a valuation of over £1 billion.

Keywords Studios, a service provider to the video game sector, has adopted a very successful buy and build strategy and is currently valued at £1.2 billion with the shares up over 1000 per cent since admission.

Plus500, which provides online trading services in contracts for difference, share dealing and options, moved from AIM to the main UK stock market in 2015. It is currently valued at £1.2 billion, with the shares also up over 1000 per cent since admission to AIM. Plus500 has also rewarded shareholders with some very large dividend payments along the way, many times the AIM admission price.

What about AIM in 2023?

Fast forward 10 years and the total market value at the end of July 2023 of AIM’s now 790 companies was £83 billion, an average of £105m per company which is close to double the average value in 2013.

Eleven AIM companies were valued at more than £1 billion with leisure travel group Jet2 the largest at £2.4 billion. Ten years ago, Jet2, which was then called Dart Group, was valued at only £350m.

It’s notable that there are currently no oil and gas companies among AIM’s £1 billion+ brigade, with Greencoat Renewables, an investor in renewable energy infrastructure assets, currently the largest energy company on AIM.

Another key attraction of AIM for IHT planning

A reflection of AIM’s heightened appeal to a broader investor base is perhaps best reflected in the growth in the daily value of shares being traded on AIM.

Back in 2013 the average daily value of shares traded on AIM was £156m per day. By 2021 the average daily value had more than doubled to £395m and even in the current market, where more elevated interest rates have and recessionary fears have seen trading volumes decline materially across the AIM and small cap universe, the average daily value in 2023 to date has still been £217m.

This liquidity is also another key attraction of investing in AIM for IHT planning purposes, the ability to access capital at short notice, should cash be needed.

What about the performance of the AIM market?

The last 10 years has seen the AIM Index deliver its usual roller coaster ride, soaring over the course of the pandemic and reaching all-time highs by the end of August 2021, only to fall back precipitously and currently sit only 6% higher than where it started on 5 August 2013.

As has always been the case, AIM remains a stock pickers market with the index offering a poor guide of the true potential to outperform and Fundamental Asset Management’s AIM IHT portfolio and AIM IHT ISA has significantly out-performed the AIM Index since inception.

You can find out more about AIM ISAs here: ‘AIM ISA Explained’.

Our recent Blog here considered how valuations on AIM are the most attractive we have seen. We also covered the valuations topic in depth in our recent webinar AIM: A Half Year Update.