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.

Investing in well-established AIM listed companies has delivered significant outperformance relative to the UK main market, and indeed other international stock markets, over recent years.

The AIM index finished 2020 up 20% for the year, an amazing achievement in the circumstances, significantly outperforming the main UK index of 100 stocks which fell 15%. This represented the biggest one-year differential in AIM’s 26-year history. Our associates Investor’s Champion provided a review of AIM’s electrifying performance in 2020 in this update here.

AIM’s strong performance in 2020 was not just a flash in the pan and over the 5 years to the end of December 2020, the AIM All share index was up 60% whereas the main UK market was 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, 2020 highlighted the fragility of dividends for highly geared companies on the main UK stock market, many of which were forced to cut or postpone dividend payments.

AIM’s outperformance over the past 5 years is all the more impressive considering the fall in the number of companies on AIM over this period with 816 companies on AIM at the end of January 2021 compared to 982 at the end of 2016. The net result is that 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.

Inheritance Tax relief is clearly a key attraction for many private investors in AIM, but we urge prospective investors to focus on the investment benefits, which have proven to be even more compelling reasons to invest in AIM over recent years.

The pandemic has had an unprecedented impact on jobs, businesses and livelihoods. As the vaccination program rolls out, attention is beginning to shift towards rebuilding and getting the UK economy back on track.

AIM is one of the most successful growth markets in the world and makes a huge contribution to the UK economy, with research suggesting that AIM companies contribute over £33bn Gross Value Added directly to the UK economy, and just as much indirectly. It is a market for young, dynamic and innovative companies and provides a market-place for them to raise equity capital supporting their innovation, driving productivity and creating employment.

Join us for our webinar at 2pm on 25^th 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

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.

We have been keeping a close eye on the reaction of AIM companies to the increasing ESG demands of customers and investors.

This week brought news of initiatives from two AIM companies which highlight the growing focus on ESG from the AIM community.

Science in Sport (LON: SIS), the premium performance nutrition company serving elite athletes, sports enthusiasts and the gym lifestyle community, announced its first major launch of an environment-friendly pack.

Science in Sport has invested in packaging technology and plan to convert the bulk of its protein powder range into recyclable pouch packaging, this being a first for the sports nutrition industry globally.

The PhD Nutrition pouch range will move to recyclable material, with a full range change completed in early 2021. In the last 12 months, PhD Nutrition has filled 700,000 pouches which have ultimately gone to landfill.

We commend the initiative of this small AIM company but also find it somewhat worrying that PhD will be the first sports nutrition brand in the world with packaging which can be recycled. Furthermore, this approach will only be rolled out to the Science in Sport brand later in 2021.

The new pouch is the first step in the Company’s strategy to minimise waste and the negative impact on the environment. Initiatives to support the recycling of gel and bar packaging are expected to commence in 2021.

We have never been tempted to invest in Science in Sport, which has been unable to make a profit for many years, and the shares continue to languish 45% below the June 2013 AIM listing price. However, it’s a credit that a small struggling AIM company has taken the initiative on this matter, although not before time given all the discarded SiS pouches one comes across!

Stephen Moon, Science in Sport’s Chief Executive Officer, commented:
“We take our ESG strategy very seriously and are in the process of introducing wide-ranging measures aimed at reducing the environmental impact our manufacturing footprint, brands and products have on our planet. The introduction of a recyclable pouch is the first of several initiatives over the short and medium-term.”

We hope they are rewarded for this initiative, as shareholders could also do with some encouragement.

Inspecs Group (LON:SPEC), the designer, manufacturer and distributor of eyewear frames, a relatively new addition to AIM in February this year announced news of a new ‘house brand’, made from fully sustainable and recycled materials.

The new brand is due to be launched in 2021 and is in line with its continued ESG improvement policy. This is another great initiative which we hope will go down well with customers, however, it would be helpful if Inspecs could elaborate on the ESG improvement policy referred somewhere on its website.

ESG investing is an undeniable and perpetual growth story which is not slowing down and is expected to be a significant part of financial advice in the future.

How does AIM perform against ESG principles and what opportunities in ESG does AIM have to offer?

Please try and join us at 2pm on 24 November for our webinar, ‘ESG & AIM – do they mix?’  You can register through the link here