The latest monthly AIM update from our associates Investor’s Champion highlights the continuing strong performance of AIM, with the total value of London’s growth market hitting an all-time high of £118 billion at the end of November.
November closed with 22 AIM companies valued at more than £1billion, three more than at the end of October and the most on record. The £billion brigade welcomed video game publisher Team17 Group and veterinary specialists CVS Group, both Fundamental AIM Inheritance Tax portfolio holdings.
The AIM index as a whole had another very strong month, rising 10.7% ending November up 9.6% for the year. That is a considerable achievement following the sharp falls in February as the pandemic impacted stock markets across the world.
What is all the more surprising about AIM’s continuing momentum is that it appears to counter the rotation to so-called ‘value’ stocks going on in other markets, reflected in the 12.3% rise in the month from the main UK index of 100 stocks, although this still remained 16.9% down for the year as a whole.
Despite AIM’s focus on younger, more rapidly growing companies and the seemingly stretched valuations for some AIM stocks, investors are evidently still prepared to pay up for the exciting growth prospects available on AIM, compared to the lower growth opportunities from many of the dinosaurs of the main UK stock market.
When investing in AIM for Inheritance Tax planning purposes we are drawn to the larger, more profitable and better-established AIM companies. This has seen our AIM Inheritance Tax portfolios miss out on the strong performance this year from some more speculative AIM stocks, notably in the area of healthcare and hydrogen fuel cells, however, we have still seen strong gains elsewhere.
Over the 5 years to date the AIM index has risen 47% (and our AIM Inheritance Tax portfolios are up even more) whereas the main UK market is up only 9.7%. We acknowledge that this excludes dividend income and the main UK market has yielded over 4% per annum over this period, however, 2020 has highlighted fragility of dividend payments for highly geared companies on the main UK stock market, many of whom have been forced to cut or postpone dividend payments.
It has been clear to us for a long time that many UK main market companies have failed to invest sufficiently in their businesses to support future growth, preferring instead to use available cash to pay dividends or support share buybacks. This is inherently wrong and has manifested in lacklustre growth and poor share price performance.
Many main market companies have the additional burden of needing to support large legacy pension commitments, which demand regular cash injections, something that does not apply to the vast majority of more youthful AIM companies.
Trading volumes on AIM also remained strong with £8.6billion of shares traded in November. This is a big number and counters the argument that AIM shares are illiquid!
Another £620m was raised in the month through secondary fund raises bringing the total for the year to £4.7billion. This compares to only £321m raised in the year to date through IPOs. We only occasionally participate in IPOs across our AIM Inheritance Tax portfolios as we generally like to see companies prove themselves on public markets first, however, there are exceptions.
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