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.
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.
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