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Fundamental Asset Management introduce positive & sustainable growth into AIM IHT portfolios

Read the What Investment coverage of Fundamental Asset Management’s recent decision to broadening its investment mandate and introduce positive & sustainable growth into its AIM IHT portfolio. (Read the full article here)

Chris Boxall, co-founder & co-managing director at Fundamental Asset has said: “this is an inevitable evolution of our successful AIM for IHT portfolio service. We recognise the opportunity for growth which positive and sustainable early-stage investing presents, while also supporting those businesses executing positive change”.

Rather than avoiding companies which do not meet typical ESG criteria, Fundamental wants to support those businesses executing positive change in their respective industries.

For example, many of AIM’s healthcare related companies have come to fore over the pandemic, whether in the area of testing or drug development. There has also been growing interest in the alternative energy arena, notably the hydrogen economy, as well as environmental matters in general.

The Fundamental’s AIM IHT portfolios have, up to now, avoided earlier stage, smaller, non-profitable companies in these sectors, due to the perceived heightened risk of these types of business for an IHT planning mandate. However, from discussions with clients and advisers they see a growing enthusiasm for supporting companies making a positive commitment to society, despite the majority of such businesses not having yet achieved profitability.

Fundamental Asset will continue to adopt their proven core/satellite approach to portfolio construction, but will increasingly consider investing small elements of the satellite basket in smaller, fast-growing, earlier stage companies.

While there is clearly perceived added risk investing in companies which are potentially in need of further capital injections to commercialise their product or service, the nature of markets has seen these types of ‘new economy’ businesses perform strongly over recent years and attract significant amounts of capital. We consider that investors’ enthusiasm for supporting more innovative companies in fast growing sectors may continue to deliver outperformance.

Enjoy your weekend,

The Fundamental Asset Team

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 17 years, from the link here.

 

Third-party due diligence provider MICAP have recently released their report for the Fundamental Asset AIM IHT portfolio for year 2020/2021. We are pleased to announce that we continue to lead the way on performance with a top quartile position over 1, 3, 5 & 10 years! Read the full report here.


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FTSE main market still struggling to keep pace with AIM!

Against all apparent and previously established logic London’s AIM market for smaller growing companies has comfortably outperformed London’s main market in all key areas during the Covid-19 period so far, one of the worst periods of economic uncertainty and downturn in our economic history.

The AIM All-Share index rose 26% between the end of January 2020 and the end of March 2021, while the FTSE All-Share Index fell -7.8%.

Also, in 2020 AIM saw a -27% fall in the number of companies leaving the market bringing the total to 55. However, the number of companies de-listing on the FTSE All-Share, rose 8% to 53, with some of those joining AIM.

On top of that, money raised by new companies joining the main market fell -19% to £2.5bn, while AIM only saw a decline of -1% from £496m to £489m.

Our associated online investment magazine Investor’s Champion covers all the new arrivals to AIM. April’s new arrivals are covered in the Blog here.

But why such a difference? Well AIM by its nature is a marketplace for many innovative and fast-moving business which are better positioned to adapt quickly. AIM also has a large exposure to some of the economy’s best-performing sectors, such as technology. The main market on the other hand has been pulled down by more established and slow-moving businesses with some in struggling sectors in the pandemic such as oil, banking and housebuilding.

The main market is yet to reach its pre-pandemic level. In contrast, AIM keeps its place as one of the most successful growth markets in the world and continues to prosper and generate enviable returns for investors.

Enjoy your weekend,

The Fundamental Asset Team

 

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 17 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 platform partners.

Third-party due diligence provider MICAP have recently released their report for the Fundamental Asset AIM IHT portfolio for year 2020/2021. We’re pleased to announce that we continue to lead the way on performance with a top quartile position over 1, 3, 5 & 10 years!

Read the report here.


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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 (formerly known as the Alternative Investment Market) 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. A lot of the strong performance came from companies qualifying for the popular Inheritance Tax planning reliefs.

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 subsequently lost Codemasters as it was acquired by US giant Electronic Arts. It’s 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. Codemasters was a constituent of our AIM Inheritance Tax portfolios.

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.

Our associates Investor’s Champion provided a review of AIM’s electrifying performance in 2020 in this update here.

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!

The AIM of today consists of a far greater number of good quality businesses, many of which are delivering far more impressive growth than their peers on the main market and are also suitable for AIM Inheritance Tax portfolios.

As individuals own 25.1% of AIM companies, against just 11.3% of FTSE 100 companies, UK private investors will also have benefited very nicely from this outperformance and supported many fast growing UK businesses.

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. In support of this, a growing number of financial advisors embrace AIM and AIM Inheritance Tax portfolios, which can also be accessed through a number of advisor wrap platforms.

We discuss AIM’s impressive performance in 2020 and potential themes to follow in 2021 in our Webinar here.  

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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How does AIM Contribute to the UK Economy?

In 2019, AIM companies contributed £33.5 billion to UK GDP, directly supporting more than 430,000 jobs and contributing £3.2 billion in tax revenue. Over the last 5 years the direct economic contribution made by AIM companies has grown by 35% from £24.8 billion while employment has grown by 22%.

In addition to this, direct contribution from AIM companies support further economic activity through both their supply chains and the expenditure of employees in their local economies. Through their supply chain expenditure AIM companies support a further 294,000 jobs and £20.3 billion of GVA. This indirect impact includes a broad range of suppliers to AIM companies such as financial services (nominated advisers and stock-brokers), business services (registrars, financial public relations, legal, tax, accounting and audit) as well as wider goods and services.

Both those employed directly by AIM companies as well as those employees supported through the supply chain will spend their wages on goods and services supplied by UK businesses. These induced effects generate further employment and GVA. The induced impact is estimated to support a further 181,000 jobs and a £13.4 billion GVA contribution to GDP.

Taken together, the overall economic impact is equivalent to £67.2 billion in GVA and over 900,000 jobs.

Improving productivity

AIM companies are, on average, more productive than the national average with productivity of £77,700 GVA per employee compared to £56,387. This is only marginally below the London average of £79,586 – the most productive region in the UK. Over the last 5 years, the productivity of AIM companies has improved by 11% compared to 10% nationally and 9% in London.

Regional spread

Unlike most businesses on the main market, AIM businesses are spread regionally across the UK in terms of their location, workforce and production lines. This helps support the UK government’s strategic goal of improving productivity and prosperity across all regions of the UK and helping balance regional disparities. Regional benefits are clear across areas where productivity is lower such as in the Midlands, Yorkshire and the North East.

Encouraging exports

Exporting plays a vital role to the UK economy by raising additional revenue from overseas. Around 20% of the turnover of UK-incorporated AIM companies comes from overseas, twice as much as their private company comparators. This figure grew significantly from £7 billion in 2010 to £12.4 billion in 2019.

Supporting growth

AIM plays a key role in supporting growth in small and medium sized businesses by allowing them to raise external finance at different stages in their lifecycle. This enables them to raise equity capital supporting their innovation, driving productivity and creating employment. It is this access to appropriate financing options that allows a business to scale and reach their growth potential.

AIM has made a significant contribution to the UK economy and has a critical part to play in supporting the economic recovery and helping to support growth across the UK economy.

(Research Grant Thornton- June 2020)

Join us for our webinar at 2pm on 25th February 2021 where we will be discussing just how valuable AIM is to the UK economy and the opportunities in 2021.

You can register from the link here.

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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Compounding Wealth on AIM

Listen to the Capital Employed Podcast where for this episode they talk to Chris Boxall from Fundamental Asset Management and Investors Champion. Chris specialises in investing in small high quality companies listed on London’s AIM stock exchange.

Chris explains why he thinks the AIM stock exchange is a great place to invest. He also talks about two quality compounders he feels, despite the high valuations, have great long term potential.

You can find out more about Fundamental’s AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years.


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How can my clients benefit from AIM?

AIM has helped many growing small and medium size companies in the UK gain access to public markets and the benefits that this brings to their businesses. AIM also provides a platform for the start-ups and small businesses of today to grow into the large businesses of tomorrow, benefitting the wider UK economy.

Individual investors can also benefit from AIM. A client can shield assets from Inheritance Tax (IHT) if held in AIM shares for two years and until death. But what are some specific scenarios where this might be beneficial to a client?

A client with a large stocks & shares ISA in main market stocks who is looking for IHT protection

Many clients have spent a lifetime building up significant sums in their Individual Savings Accounts (ISAs) where they have benefited from tax-free income and capital growth on those investments. However, an ISA in market shares or funds does not give any IHT protection. Since 2013, it became permissible to hold AIM shares in an ISA. As such, a client can transfer previous year’s ISA allowances into an AIM ISA and receive full IHT protection after two years.

A client looking to leave as much as possible to the next generation without losing control of the assets

Settling assets into trust or gifting assets away means the original owner loses control and cannot draw on them if needed in the future. However, shares in BR-qualifying investments remain in the investor’s name which means that if an unexpected event occurs later in life (such as medical bills or care home fees) the client will have the funds needed to meet any resulting costs.

A client who does not have long left looking for IHT mitigation sooner rather than later

Unfortunately, IHT planning often starts too late and many families can find themselves in a position where they are looking for protection sooner rather than later. It can take up seven years for a gift or asset held within a trust to be classified as being outside the original owner’s estate for IHT purposes. However, a BR qualifying investment can be passed on at death free from inheritance tax, provided it has been held for at least two years and at the time of death.

A client who has sold a business in the last 3 years looking to retain the Business Relief benefit

Where a client has sold a business, the proceeds will form part of their estate for IHT. However, where the business assets qualified for BR and were held for two of the last five years, the client has three years from the sale to reinvest into a BR qualifying asset to retain the benefit without having to hold for another two years.

An attorney under a lasting Power of Attorney looking to plan grantor’s estate for IHT without necessitating Court of Protection approval

An attorney under a lasting Power of Attorney (POA) arrangement will require Court of Protection approval to gift assets or settle them into trust on behalf of the client. This is due to the fact these arrangements remove ownership from the client. An AIM IHT arrangement is a simple purchase of shares in the name of the client and does not require such approval.

A client looking to take advantage of the growth opportunity in AIM

AIM is one of the most successful growth markets in the world. Unlike gifts of cash, or cash held in a trust, companies listed on AIM give investors an opportunity to benefit from the potential capital growth AIM has to offer.

A client who wants IHT protection but does not want to use a trust

Some clients are reluctant to set up trusts due to their complexity and cost as well as the possible requirement to take specialist legal advice and on occasion, medical underwriting. AIM allows for clients to achieve IHT protection over their assets in a straight-forward and simple method.

Derek McLay

Business Development Manager, Fundamental Asset Management Ltd.

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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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


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Investors beware – fairy tale investing is here

London’s AIM market has performed strongly over the pandemic, materially outperforming the main UK stock market, which has now been the case for several years.

In this interview with Jeremy Naylor of IG markets, Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, discusses the performance of several companies whose shares have soared over recent months, and asks where they could go from here given the elevated valuations.

He also considers the unusual ’investing’ environment, where profit and return now appear to be of secondary importance to many investors as they seek out the next great idea.

Companies covered in the interview include:
Abcam (ABC)* 2 minutes 10 seconds
Codemasters (CDM)* 3:38
GB Group (GBG) 5:56
GlobalData (DATA) 8:21
Fairy tale valuation methodology and concept investing 10:30
D4t4 Solutions (D4T4) 11:56
Watkin Jones (WJG)* 14:26
Elixir International (ELIX)* 18:21

* Existing Fundamental portfolio holdings

You can find out more about Fundamental’s AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years.


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Watershed event for AIM

The proposed acquisition of main market listed SDL (LON:SDL) by AIM quoted RWS Holdings (LON:RWS) is, in our opinion, a watershed moment for AIM, as an AIM company acquires a sizeable main market listed peer, but the combined group reamins on AIM.

RWS is one of the world’s leading language, intellectual property support services and localization providers. While those don’t sound like the most thrilling of activities RWS has delivered stunning results for shareholders over the years.

Chris Boxall discusses the deal in this video here.

Fundamental have been investors in RWS, whose headquarters is close to our own office, for about 14 years. Here is a brief history of its progress on AIM.

RWS arrived on AIM in October 2003 via a reverse into the previously named shell company Health Media Group.

The equivalent share price at the time was 22p and market capitalisation £45m. Fast forward nearly 17 years and the shares have risen nearly 2700% to 613p (they were as high as 767p this month), with the market capitalisation £1.8bn.

Through a mixture of organic, and more recently more acquisition led growth, RWS has developed into one of AIM’s largest companies.
RWS’s acquisition strategy really accelerated in 2013 with the acquisition of inovia Holdings, a leading provider of web-based international patent filing solutions.

It followed this in November 2015 with the sizeable acquisition of Corporate Translations for US$70m. CT was the world’s leading life sciences translation and linguistic validation providers.

February 2017 saw the acquisition of LUZ, a market leading Life Sciences language services provider based in San Francisco, for a cash consideration of US$82.5m. To support this meaningful acquisition, it raised gross proceeds of £40.0m at 330p per share.

In Nov 2017 it acquired Moravia, a leading provider of technology-enabled localisation services, for $320m. Localisation is the adaptation of content, software, websites, applications, marketing materials and audio/video for hundreds of languages and geographies. It requires the translation and customisation of clients’ content and platforms for cultural conventions, compliance with local regulations and consistency of brand style and tone.

For the half year ending 31 March 2020, Moravia represented 47% of RWS’ group revenue of £170m and 34% of the group’s operating profit.
Smaller acquisitions followed in 2019 and June 2020, culminating in this week’s deal to acquir main market peer SDL Group in a £700m all-share deal.

The combination of SDL and RWS will create the world’s leading language services and technology group with capabilities across a range of language services and IP services, combining the complementary strengths of RWS’ specialist technical translation and localisation capabilities with SDL’s software, machine translation and AI capabilities.

It will support an expanded blue chip customer base with limited overlap across its core markets, including 90 of the world’s top 100 brands by value, all the top 10 pharmaceutical companies globally, many of the major West Coast technology businesses, and approximately half of the top 20 patent filers worldwide.

The RWS name will be retained for the combined group which will continue to be headquartered in Chalfont St Peter and remain listed on AIM, which is good news for those holding shares in RWS for the Inheritance Tax planning attractions, including many of our clients.

The combination should put SDL’s technology to better use thereby enhancing margins, which in the case of SDL, have been somewhat ordinary – while the two businesses had similar revenues in 2019, RWS’s operating margins were more than double those of SDL. Pro forma FY2019 revenues are £732m and pro forma adjusted operating profit £116m, imply a combined operating margin of 15.8%.

What has been constant in RWS’ journey has been the presence of Chairman Andrew Brode, who retains a near 33% stake in the current business and to our knowledge has never sold a share. We are reassured that, with so much of his personal wealth at stake, Mr Brode would have thought long and hard about this deal. The Inheritance Tax planning attractions are no doubt an incentive for him to keep the group on AIM!

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