Since the start of lockdown the unemployment rate in the UK remains relatively unchanged. So far so good. However, scratch the surface and a far more worrying picture begins to emerge. Figures from the Office for National Statistics showed that UK company payrolls fell by 649,000 between March and June, a 16.7% fall. The reason for this is obvious, people have remained employed through the furlough scheme but are not on their company’s payroll. Many experts believe we will not see the full effect this could have until the scheme ends in October.

However, The Office for Budget Responsibility has recently published a report warning that unemployment was likely to rise to a record 12% by the end of this year, falling back to 10% in 2021, and we have already seen several high-profile companies let staff go.

Oasis and Warehouse made 1,800 jobs redundant in April after being bought out of administration in April and later sold to Boohoo Group in May. Luxury fashion and accessories brand Mulberry cut 470 UK job cuts in June, a quarter of its global workforce.

So what has been the Government’s response to this looming crisis? Well they have committed to paying a job retention bonus of £1,000 for each furloughed member of staff brought back. This is courtesy of Rishi Sunak’s summer economic plan outlined last week. But will it be enough?

Two businesses who could be affected in very different ways are Dart Group a (Fundamental AIM portfolio holding) and Young & Co.

Dart Group, the owner of Jet2 airline, announced in April that it had placed 80% of its workforce on furlough and asked them to take a 30% pay cut during this time. However, reducing the cost associated with staff has done little to outweigh the impact of a mass cancellation of flights and travel restrictions and the firm has seen an 11 per cent decline in profits in the year to March 31. Virgin Atlantic, Easy Jet and British Airways have all confirmed they will be making significant redundancies and Jet2 is expected to follow suit. Considering the long term impact the pandemic will have on the travel industry it remains to be seen if the retention bonus will have much impact here.

Young & Co, which owns 220 pubs around the UK, announced in March that it would not be paying its final dividend and would furlough the majority of its staff. However, as pubs begin to reopen and early reports suggest patrons are all too willing to absorb any risks for a good pint, Sunak’s plan may be just enough to keep the bar staff pulling pints.

These measures will work for some businesses and not others and time will tell if they will be enough to keep Britain working.

Derek McLay
Fundamental Asset Management

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.

There is no doubt that Covid-19 has changed the way we view our future. Investors and financial advisers alike are looking for the answers and the way to move forward. One thing we do know is that the show will go on regardless, Covid or non-Covid.

In the headlines this week, Boohoo Group reacted to criticism over work conditions at one of its suppliers and Rishi Sunak announced measures to kerb unemployment as business begin to reopen.

Join me and Fundamental co-founders Chris Boxall and Stephen Drabwell on the 28 July for our webinar: ‘Post-Covid opportunities in AIM you should be paying attention to.’ , where we will be discussing this and more. Find out why Boohoo group has never had a place in Fundamental portfolios and where we see the future for the UK economy and AIM. Click here or on the image below to register.

Last week, Chris and Stephen presented at Intelligent Partnership’s AIM Showcase webinar event where we discussed our response to Covid-19, our AIM portfolio for IHT solution and our views on why you should invest in AIM for growth and not just for potential tax savings. You can watch the videos from the link here.

Lastly, it is sunny around the UK today and due to be this weekend also. Enjoy the reopening of pubs and beer gardens, take care and be safe.

Derek Mclay

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.

The AIM index is up 30% since 1st April i.e. Q2 2020. Maybe this is not surprising when you consider that it fell by 29% in Q1 and, as has been widely reported in the mainstream press, markets have rebounded.

However, when you compare to the UK main markets, AIM has massively outperformed in Q2 with the FTSE 100 and FTSE All-Share up c10% and 11% respectively. And, it’s not if the main markets didn’t fall as much in the first quarter. The 100 was down 25% and the All-Share 26%.

So what is driving AIM?

Well, it is probably a number of factors.

Firstly, it has been well documented for some time that the FTSE 100 is full of pretty dull and uninspiring companies and that can partly explain why it has also underperformed the S&P500. The UK blue-chips did benefit last year from a weakening pound as overseas investors bought cheaper assets and yield. With Sterling still relatively weak, it appears that no longer remains an attraction.

However, that aside it is more likely that the dominance of a few underlying companies is distorting the index and this has always been the problem of using AIM as a comparative index.

There were 831 companies listed on AIM at the end of May 2020, with the combined market capitalisation of the market c£95.3bn. There were 17 companies individually valued at more than £1bn, which between them represented 34% of the total market capitalisation.

With AIM being a weighted index, i.e. the return of the index is based on a weighted return by market capitalisation, rather than each company being weighted equally as the US Dow Jones is for example, it is fair to say that those 18 companies will really move the needle.

And if we look into some of those companies, you will see the influence they have.

Probably two of the most well known companies listed on AIM are online clothing retailers Boohoo and ASOS. Boohoo, with a market cap of c£5bn is comfortably the largest company on AIM by value, being £1.5bn more than the next on the list, Abcam.

Combined, these companies represent over 8% of the index. When you consider that ASOS is up 177% in this quarter alone and Boohoo 115%, returning to pre -lockdown levels, you can see the influence they are having on the index as a whole. ITM Power, another £1bn+ company is also up over 100% quarter to date.

Unless you are holding these companies in your portfolio, it is very likely that your AIM portfolio is going to be significantly underperforming the AIM index.

So although the AIM index has been a better indicator for AIM portfolios in recent years, it goes to show that it can be misleading in extraordinary times.

You can find out more about Fundamental’s high performing AIM portfolio service, including the latest fact sheet for May, from the link here.