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Storms continue to batter global markets

Global Markets Continue to Struggle

The outlook for global economies continues to look challenging, with high inflation and rising interest rates potentially tipping many countries into recession.

As a result, global stock markets, led as usual by the US, have been suffering for quite a while. Unfortunately AIM has not been immune to this, with the AIM index now down over 33% year to date.

The bear market since the summer of 2021 is one of the longest we have seen in our 30+ years in investment management. Even the financial crisis of 2008 did not last as long as this and we can only hope that we are somewhere near turning the corner.

Certainly, the recent updates from our core portfolio holdings have been largely positive, despite the challenges they face, although this has not been reflected in their share prices!

What do we do we do at the moment? 

As we have previously mentioned, with the market not reflecting the general positive performance of many of the companies in our portfolios, the simple answer is, we do very little, other than drill down into the many results and updates being reported by companies and keep a very close eye out for bargains.

During previous periods of excessive volatility we recommend clients ignore the manic movements of share prices and unless there is a need to sell, the best cause of action is to continue wait for things to turn around, knowing we are well invested when the turnaround occurs.

It is worth remembering that in February 2020, the AIM market fell 36% in a month but it finished the year up 20%. A similar recovery took place after the Financial Crisis of 2007/8. We expect something similar in the near future, with the AIM of today a far higher quality market than it was in 2008.

During periods like this, we consider long-term holders of small cap shares should view the stock market as effectively closed, unless they are looking to buy a potential bargain.

Potential light at the end of the long tunnel?

Despite all of the negative news, today the Office for National Statistics announced that rather than contract as their previous reading suggested, the UK economy grew in the second quarter of this year by 0.2%. Whether this is the start of things beginning to improve remains to be seen.

Upcoming webinar

The next Fundamental webinar on Wednesday 12th October at 3 pm is called AIM: cheap for good reason or bargains to be snapped up? It will be on looking back at the last quarter and reviewing the outlook ahead; including a focus on how have companies really been performing vs their stock price? To register for the webinar and to be able to view it after the event, click here.

To find out more about the benefits of investing in AIM, or if you wish to discuss the current situation, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894.


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Webinar – AIM: cheap for good reason or bargains to be snapped up?

Is it time to be greedy when others are fearful?

It has been a painful time recently for AIM investors. In the upcoming Fundamental Asset Management webinar on Wednesday 12th October at 3pm we ask: AIM: cheap for good reason or bargains to be snapped up?

To register your spot and to be able to watch it after the event, please click here.

Fundamental’s portfolio managers Chris Boxall & Stephen Drabwell will be reviewing the last quarter as well as looking ahead to Q4.

AGENDA
– Q3 Review.
– What lies ahead for Q4.
– It has been a terrible time for AIM stocks; could now be the time to invest?
– Trading performance vs share price performance.
– Valuations.
– Impact of “mini budget”.
– Questions.

For more information about reducing Inheritance Tax using Business Relief (also known as Business Property Relief) click here.

To find out more about the benefits of investing in AIM shares for IHT planning purposes, please get in touch via email at [email protected] or phone 01923 713 894


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Kwasi’s bold Budget – what does it mean for AIM?

UK chancellor Kwasi Kwarteng’s mini-Budget, ‘The Growth Plan 2022’, which is intended to give a much-needed boost to the British economy, should be good news for smaller growth companies, particularly those on AIM, although you wouldn’t believe it from the stock market’s initial reaction to the news!

Kwarteng announced a “new approach for a new era”, based on what he said were three pillars of supply-side reform, tax cuts and a responsible approach to public finances. The tax cuts announced are expected to cost £45bn by 2026-27 with the Financial Times commenting how they are even larger than the reductions in Nigel Lawson’s 1988 Budget and the biggest since 1972. Paul Johnson, director of the Institute for Fiscal Studies, said: “It’s half a century since we’ve seen tax cuts announced on this scale.”

Skipping through the cuts to personal tax, our focus here is on how the so-called Growth Plan 2022 might impact companies in our AIM portfolios.

Stamp duty cut

Effective immediately, buyers in England and Northern Ireland will pay no stamp duty on the first £250,000 of a property’s value — double the previous £125,000 threshold — and first-time buyers will pay no tax on the first £425,000, up from £300,000.

While the measures will probably do little to insulate buyers from the effects of rising interest rates or meaningfully boost first-time buyer numbers, they will help to underpin the construction of new homes in the UK and all those businesses supporting the housebuilding sector, of which there are several on AIM, one of which we covered in an earlier Blog here.

Corporation Tax rise is scrapped

The government has committed to cancel the increase in the main rate of Corporation Tax to 25% which was due to take effect from April 2023, keeping the rate at 19%. This is clearly excellent news for shareholders in all UK-based companies.

Tax Partner, Elliot Weston at Hogan Lovells, said: “Overseas investors looking to invest in UK assets do look at the headline rate of UK corporation tax when they model financial returns, so keeping it low can have a marketing benefit for the UK…”

To further support businesses to invest and grow, the government will also make permanent the temporary £1 million level of the Annual Investment Allowance (AIA), which was due to expire after 31 March 2023. This will support business investment, provide businesses with more stability and make tax simpler for any business investing between £200,000 and £1 million in plant and machinery. This means businesses can deduct 100% of the costs of qualifying plant and machinery up to £1 million in the first year.

Supporting EIS

The government is supporting companies to raise money and attract talent by increasing the generosity and availability of the Seed Enterprise Investment Scheme (SEIS) and Company Share Option Plan (CSOP). It also remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them in the future. Hopefully this will support an increase in the number of EIS qualifying issues on AIM, which have been few over recent years.

EIS was due to expire in April 2025 because of a European Union state aid ‘sunset clause’, resulting in investors to call for an extension. The scheme has provided £1.7bn a year to 3,755 companies and generous tax relief for investors. Kwarteng also announced a raising of the age limit on companies raising SEIS investment from two to three years.

VAT-free shopping for tourists

Tourists visiting the UK will be able to benefit from VAT-free shopping, providing a shot in the arm for the beleaguered UK retail sector.

Kwasi Kwarteng told the House of Commons: “Britain welcomes millions of tourists every year, and I want our high streets and airports, our ports and our shopping centres, to feel the economic benefit. So we have decided to introduce VAT-free shopping for overseas visitors.”

The Stock Market’s numerous retailers can rejoice!

Chancellor pledges overhaul of EU laws

Kwasi Kwarteng told MPs that the planning system for major infrastructure projects is “too slow and fragmented” as he pledged to speed it up.

The Chancellor said that “in the coming months, we will bring forward a new Bill to unpick the complex patchwork of planning restrictions and EU-derived laws that constrain our growth”.

Those businesses supporting major infrastructure projects, of which there are several on AIM, will clearly benefit.

But….government borrowing set to soar

The combined effect of a deteriorating economic outlook, the energy support package and the proposed tax cuts will see government borrowing increase by £411 billion over the course of the next five years, according to the Resolution Foundation.

The think tank said that “debt is on course to rise in every year reflecting the largest permanent loosening of fiscal policy on record”.

Torsten Bell, the Resolution Foundation’s chief executive, said: “This may not have been a Budget, but the Chancellor has certainly blown the budget with the biggest package of tax cuts announced since the ill-fated Barber Budget of 1972.”

Weak pound means opportunity

Despite the prospect of higher interest rates, the pound fell to $1.09 against the dollar, its lowest level since 1985. As we commented in our previous Blog here  the UK’s weak currency could offer a terrific opportunity for UK exporters.

There are plenty of these on AIM, with many having seen their share prices and valuations tumble over recent months, offering a compelling buying opportunity for patient investors, particularly with those with an eye on the Inheritance Tax planning benefits.

The weak pound and tumbling share prices also make UK listed companies more appealing to overseas buyers and there have been several offers and recommended bids for UK Technology companies over the summer, including two on AIM.

To find out more about the benefits of investing in AIM, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894

Our Webinar here covered many of the key questions clients ask when considering investing in AIM shares for Inheritance Tax Planning purposes. You can watch a recorded version of the webinar from the link here.

This video presentation here also provides a brief introduction to the Fundamental AIM IHT portfolio service.


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Weak pound means opportunity for AIM’s exporters

The pound is trading near its lowest level against the US dollar since 1985, a year which also saw Mikhail Gorbachev become the leader of the Soviet Union, Boris Becker become the youngest winner of the Wimbledon Men’s singles title and England win the Ashes.

The popular press is revelling in the current gloomy economic backdrop and while times are indeed challenging, notably from an energy and inflationary perspective, the UK’s weak currency could offer a terrific opportunity for UK exporters.

Thankfully there are plenty of these on AIM, with many having seen their share prices and valuations tumble over recent months, offering a compelling buying opportunity for patient investors, particularly with those with an eye on the Inheritance Tax planning benefits.

One of our long-term AIM portfolio holdings AB Dynamics has seen its shares fall substantially from 2021’s highs. With its headquarters in Bradford-on-Avon, near Bath, AB Dynamics is a manufacturer of advanced testing, simulation and measurement products for the global automotive sector – we covered this excellent company previously in a Blog here. AB Dynamics is a major beneficiary of the transition to electric vehicles, supporting nearly all the world’s car manufacturers. In 2021 over 90% of its revenue was derived from outside the UK, including 24% from North America and 50% from the Asia Pacific region. With its main manufacturing facilities in the UK, the weak pound could therefore be helpful to business.

AIM going cheap, especially for US buyers

The weak pound and tumbling share prices also make UK listed companies more appealing to overseas buyers and there have been several offers and recommended bids for UK Technology companies over the summer, including two on AIM.

This week brought news that GB Group, experts in digital location, identity verification and fraud software and one of our newer AIM portfolio holdings, is currently considering a possible cash offer from GTCR, a US-based private equity business.

Shares in GB Group hit a 5 year low in early July, despite not having had any operational issues and meeting the market’s expectations.

The share price of GB Group leaped in response to the latest news, but still remains well down on year highs, with many anticipating that rival bidders will emerge.

If share prices remain depressed, we anticipate that many other good quality UK listed AIM companies, will be snapped-up by cash rich overseas buyers.

As we commented in our previous Blog here, AIM’s well-established technology related companies, notably in the software arena, look particularly vulnerable to approaches, given their proven business models, cash generative attributes and largely debt-free balance sheets.

 

To find out more about the benefits of investing in AIM, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894

 

Our Webinar here covered many of the key questions clients ask when considering investing in AIM shares for Inheritance Tax Planning purposes. You can watch a recorded version of the webinar from the link here.

This video presentation here also provides a brief introduction to the Fundamental AIM IHT portfolio service.


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Will your money help HMRC break another record?

Will your money help HMRC break another record?

HMRC’s latest figures released today show that Inheritance Tax (IHT) receipts for April 2022 to July 2022 are £2.4 billion; £0.3 billion higher than in the same period a year earlier.

Will your family have to pay IHT to HMRC after you have passed on? If this is something you wish to help your loved ones avoid, investing in qualifying AIM stocks could be for you.

If a client invests in certain AIM shares that qualify for Business Relief for 2 years and provided they are still held at death, the estate will not pay Inheritance Tax on them – a saving of 40%. Fundamental Asset Management’s AIM Inheritance Tax portfolio can help you plan for your family’s future.

Inheritance Tax mitigation

A Fundamental AIM Inheritance Tax portfolio achieves 100% mitigation from Inheritance Tax after only two years. Not seven years as is the case through a gifting or trust approach.

Existing ISAs can also be transferred to Fundamental providing greater potential savings for your loved ones.

This video presentation here provides a brief introduction to the Fundamental AIM IHT portfolio service, while our webinar here reviews the second quarter of the year and discusses our ESG and PRI developments.

To find out more about the benefits of investing in AIM for Inheritance Tax planning purposes, where sustainability is also a key consideration, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894.


Fundamental Asset Management
www.fundamentalasset.com


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AIM for positive impact: Jet2 leads the way

The recent full year results statement from AIM listed leisure travel group Jet2 PLC (AIM:JET2) made a point of highlighting its focus on sustainability. While a company operating a fleet of passenger airlines is unlikely to draw huge amounts of enthusiasm from ESG investors, Jet2 appears to be making considerable progress on the sustainability front.

Jet2.com is the UK’s third largest airline, flying from 10 UK bases to over 70 destinations across Europe and beyond and Jet2holidays is the UK’s second largest tour operator. 

Between 2011 and 2019, the Group reduced its CO2 emissions per passenger kilometre from 83.1g to 67.0g, a reduction of more than 19%. In 2018 it was ranked 11th best airline in the world in this regard by Atmosfair Index, although to put things into perspective it’s worth noting that among UK operators, TUI and Thomas Cook were ranked 1st and 7th respectively.

In September 2021, Jet2 published a comprehensive Sustainability Strategy with the vision to be “the leading brand in sustainable air travel and package holidays”.

As part of their Jet2 Net Zero 2050 commitment, in addition to the significant new Airbus A321 neo investment, Jet2 will offset emissions not currently covered by existing carbon pricing mechanisms (UK and EU Emissions Trading Schemes), thereby taking full responsibility for all its carbon emissions.

By going above and beyond regulatory requirements, Jet2 will see a significant drop in net emissions in the coming months and years. The Group has also committed to using a percentage of UK produced Sustainable Aviation Fuel.

Further, by 2023, 50% of their Ground Support Equipment will be zero carbon and they will have reduced single use plastics on their aircraft by 80% compared to 2019 – equivalent to removing 11 million items per annum!

Jet2holidays will also act on the environmental impacts in its supply chain by enabling customers to make more sustainable accommodation choices through its hotel sustainability labelling system.

You can find out more about Jet2’s initiatives towards sustainability here: www.jet2plc.com/sustainability

To find out more about the benefits of investing in AIM, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894

Our upcoming webinar will review the second quarter of the year as well as discuss our ESG and PRI developments. For more information on investing in AIM shares for Inheritance Tax Planning purposes.

This video presentation here also provides a brief introduction to the Fundamental AIM IHT portfolio service.

Fundamental Asset Management
www.fundamentalasset.com


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No initial fee for advised clients investing Direct

No initial fee for advised clients who invest Direct

To further support advisers, from Monday 27th June, advised clients who directly invest in Fundamental Asset Management’s AIM IHT Portfolio Service will no longer be charged an initial fee.

The scrapping of any initial fee is part of our ongoing commitment to support advisers and aligns with our fee structure for portfolios managed through wrap platforms (Eg Abrdn Elevate & Wrap, Funds Network, Nucleus, Standard Life, Transact etc.).

If you would like an illustration, please contact our Business Development Manager Jonathan Bramall via email [email protected] or phone 01923 713 894.

For more information about reducing Inheritance Tax by using Business Relief (also known as Business Property Relief) click here.

 

 

Fundamental Asset Management
www.fundamentalasset.com


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The Fundamentals #8 – A profile of our investment team

In the eighth of our series – The Fundamentals – about going back to the basics of investing in AIM shares for Inheritance Tax (IHT) planning purposes, we look at the Fundamental Asset Management Investment Team.

Since 2004, Fundamental Asset Management portfolios have been managed by our two founders Chris Boxall and Stephen Drabwell.

Chris and Stephen are experienced investment managers who have been managing the portfolios in-house since inception. Chris and Stephen conduct all research supported by external analysts (former fund managers, private investors and business people).

STEPHEN DRABWELL

STEPHEN DRABWELL

Stephen Drabwell is a co-founder, major shareholder and director of Fundamental Asset Management. Stephen oversees the trading, asset allocation and operational aspects of managing the many AIM IHT portfolios that the company oversees. Prior to founding Fundamental, Stephen started his career at the investment bank, UBS in 1990. Following 9 successful years at UBS, which saw him progress to becoming a sales trader on the European portfolio trading desk, Stephen joined Washington Asset Management where he was senior trader for a US Long/short hedge fund. Stephen helped grow the fund from $30m to $250m before leaving in 2004 to start Fundamental.

CHRIS BOXALL

CHRIS BOXALL

Chris Boxall is a co-founder, major shareholder and director of Fundamental Asset Management. Chris qualified as a Chartered Accountant in 1989 and has primary responsibility at Fundamental for company research and portfolio management for the firm’s equity portfolios, with particular focus on AIM. Prior to Fundamental Chris oversaw activities at the Washington Financial Group, where he was a key member of the investment management team of the Washington US Fund Ltd, a successful equity fund.

For more information about reducing Inheritance Tax by using Business Relief (also known as Business Property Relief) click here.

If you have any questions or would like to speak with Stephen or Chris, please do not hesitate to contact our Business Development Manager Jonathan Bramall via email [email protected] or phone 01923 713 894.

The Fundamentals Series

Our Educational Webinars also provide plenty of further information.

Fundamental Asset Management
www.fundamentalasset.com


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The Fundamentals #7 – 10 reasons to invest with Fundamental Asset Management

In the seventh of our series – The Fundamentals – about going back to the basics of investing in AIM shares for Inheritance Tax (IHT) planning purposes, we look at  reasons to invest with Fundamental Asset Management.

If you or your client already invests with us, we hope you don’t mind us reminding you what makes us different.

10 Reasons to invest with Fundamental

1. Same portfolio managers since founding in 2004.

2. Our in-depth research seeks out the best investment opportunities on AIM.

3. Experience and expertise, gained through several stock market cycles, along with our outstanding customer service, makes Fundamental Asset Management one of the most successful AIM managers for tax efficient investing in the UK.

4. Personal service with resources such as market insights and direct contact with our portfolio managers.

5. “Core and Satellite” investing approach provides exposure to larger AIM stocks as well as smaller companies with higher growth potential.

6. Excellent value for our clients; a fully tailored portfolio service.

7. Client retains access – assets remain in client’s own name – so no loss of control and client has freedom to redeem part or all if needed.

8. Significantly outperformed the AIM market since inception in 2004, but monthly returns have exhibited less volatility.

9. Support to estates after a client has passed away. At a difficult time, we provide the information HMRC requires at no additional charge.

10. One of the most competitively priced products in the market providing excellent value.

For more information about reducing Inheritance Tax by using Business Relief (also know as Business Property Relief) click here.

If you have any questions, please do not hesitate to contact our Business Development Manager Jonathan Bramall via email [email protected] or phone 01923 713 894

The Fundamentals Series

Our Educational Webinars also provide plenty of further information.

Fundamental Asset Management
www.fundamentalasset.com


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AIM ‘For Sale’ – private equity spots a bargain

The recent stock market sell-off has resulted in several private equity groups taking a close interest in AIM quoted companies. We aren’t surprised given the quality on offer from AIM’s proven performers, nearly all of which are now trading at significantly lower valuations than they were a few months ago.

At the end of April, Baring Private Equity Asia (‘BPEA’), confirmed that it was in the preliminary stages of considering a possible offer for RWS Holdings, one of AIM’s largest companies, valued at over £1.5 billion.

RWS has not received any formal approach from BPEA, which may never materialise, but we aren’t surprised they have made a move given RWS’ declining share price over recent months and the highly cash generative nature of this world-leading provider of technology-enabled language, content and intellectual property services.

BPEA is required, by not later than the close of business 19 May 2022, to either, announce a firm intention to make an offer, or announce that it does not intend to make an offer. The deadline may be extended with the consent of the Panel on Takeovers and Mergers.

Matters have progressed even further with Ideagen, a provider of compliance software for regulated industries. In the middle of April, private equity group Cinven confirmed that it was in the early stages of considering a possible offer for the Company. While Cinven subsequently pulled out, two other private equity groups, Astorg and Hg, then stepped in.

Hg has now offered to pay up to 350 pence per share, a premium of about 52% to Ideagen’s closing price on April 11, valuing Ideagen at just over £1 billion..

Shares in Ideagen currently site at 352 pence, above Hg’s offer price, suggesting that investors are expecting a counter bid from French rival suitor Astorg.

UK-based Ideagen is a leader in the +$30 billion regulatory and compliance software market, serving highly regulated industries such as life sciences, healthcare, banking and finance and insurance. More than 8,000 customers use Ideagen’s software, including 9 of the top 10 UK accounting firms, all of the top aerospace and defence companies and 75% of leading pharmaceutical firms.

Ideagen’s board plans to unanimously recommend the Hg deal to shareholders, considering that it “represents value for shareholders”.

Since moving to AIM from Plus Markets in July 2012, when its market capitalisation was only £11m, Ideagen has been a strong performer on AIM, acquiring a large number of businesses along the way. Given the recent de-rating of technology stocks, the acquisition multiple of 48x adjusted forecast earnings for the year to April 2022 looks quite full to us, so we aren’t surprised the board are enthusiastic supporters of the deal.

Not only will we be sad to see another high-quality AIM company leave the junior market, but, if share prices of AIM companies continue to languish, we fear that cash-rich private equity buyers will acquire several other AIM companies by the time the year is out.

AIM’s well-established technology related companies, notably in the software arena, look particularly vulnerable to approaches, given their proven business models, cash generative attributes and largely debt-free balance sheets.

To find out more about the benefits of investing in AIM, please speak to our Business Development Manager Jonathan Bramall via email [email protected]  or phone 01923 713 894

Our recent Webinar covered many of the key questions clients ask when considering investing in AIM shares for Inheritance Tax Planning purposes. You can watch a recorded version of the webinar from the link here.

This video presentation here also provides a brief introduction to the Fundamental AIM IHT portfolio service

 

Fundamental Asset Management
www.fundamentalasset.com