The Conservative election victory, supported by progress with the US/China trade negotiations, triggered a strong rally from stock markets, with the UK index of 100 leading shares up just over 1%, the UK mid-cap index surging over 3% and US stocks hitting record highs. The AIM index was up just over 2%, but who were the biggest winners on our AIM portfolios from this short term ‘Boris bounce’?

Anything associated with housebuilding, construction and infrastructure spending had a terrific day, with notable risers from our AIM portfolios  Breedon (construction materials) and Nexus Infrastructure (infrastructure services to UK housebuilders). Having struggled in the first half of the year, Nexus announced its full year results this week with a strong order book offering plenty of encouragement for the future.

Shares in Adept Technology, which provides managed IT services to over 100 councils, NHS trusts, schools and other government bodies, also rallied. The share price of this excellent business, which generates plenty of reliable recurring revenue and cash, has struggled to make much progress over the past few months. With the election out of the way and a more stable political outlook hopefully it will start to attract greater interest.

Highly rated foreign exchange brokers Alpha FX Group and Argentex will have had a busy time supporting their clients in the face of a rising pound, but their share prices barely moved today. With many predicting that the pound will continue to rise over the coming months their services should continue to be in high demand from corporate clients needing help managing foreign exchange exposures.

RWS Holdings, the intellectual property support services and localization provider, was a notable faller on the day. AIM’s 8th largest company announced excellent results this week but warned that, having previously benefited from positive exchange rate movements, currency is proving less supportive at the start of its new financial year. A resurgent pound won’t have helped sentiment in the short-term but this terrific business has weathered far greater currency storms over the past 10 years.

For further information on Fundamental’s high-performing AIM portfolios and thoughts on winners and loses from the election please contact Chris or Stephen on 01923 713890. You can download fact sheets and other information from the Publications section here. 

While the UK market was clearly the main focus of attention for many, a US listed company which we hold on some of our general portfolios stole the show for us and highlights the terrific investment opportunities available on overseas markets. Adobe will be well known many through its free Acrobat software which is used to read PDF documents, however, there is clearly much more to this creative and digital media software business. This US giant has delivered tremendous growth over the past 3 years and now boasts a market capitalisation of $150bn. Despite its huge size Adobe has just reported a 24% growth in like-for-like annual revenue to $11.17billion and 15% growth in earnings per share. And who says elephants can’t gallop!

Adobe is also a constituent of Investor’s Champion’s Ultimate Stocks Portfolio which you can find out more on from the link here.

The share price of CVS Group (LON:CVSG), the UK’s leading veterinary services business, rose strongly this week on the back of another positive trading update. CVS has been a mainstay of Fundamental AIM portfolios for many years, although it’s tested our patience on numerous occasions.

The dynamics of the UK veterinary market have changed significantly over the past few years and a shortage of newly qualified vets, combined with the rapid consolidation of the sector, has been making life harder for CVS, the UK’s largest consolidator.

We were getting particularly concerned by CVS management’s strategy of pursuing high priced acquisitions, despite the evident challenges in the sector which needed addressing. Generally speaking Fundamental is a very cautious investor in pure ‘buy and build’ business models of the sort being run by CVS. From our perspective, there comes a point when the focus needs to be on internal matters and organic growth. However, we like the defensive attributes of this sector and the management team had done a pretty good job up to now, so we were prepared to see this through.

Other investors were clearly also worried about the state of play sending the share price down sharply to a low of 362p in January 2019 from 1140p just six months earlier.

The interim results for the six months ending 31 December 2019, announced at the end of March 2019, offered a first glimpse that things were improving, with management addressing several of the key issues which had contributed to the previous underperformance.

What encouraged us more than anything was the greater reluctance to pursue acquisitions, unless the price was right, and a greater focus on organic growth. The interim results commented on an increase in the number of in-house referrals, which would benefit the group’s referral centres like Lumbry Park, which we visited in the summer and in which they had made significant investment. The growing numbers joining CVS’ Healthy Pet Club scheme, which provides care through a monthly subscription model also looked encouraging.

Results for the year ended 30 June 2019 announced in September provided further evidence that things were continuing to improve with like-for-like sales growth of 5.2%, of which 4.3% came from the core Veterinary Practices division. Earnings before interest tax, depreciation and amortisation (EBITDA), after central office costs, rose 14.5% to £54.4m.

The group’s Healthy Pet Club had 401,000 members at the year-end, an increase of 10.8% in the year, with 133% growth in their new Healthy Horse Programme to 7,000 members. These membership schemes bind the group to its clients and their pets and lifted annual monthly based subscription revenue 19% to £45.4m.

The update this week offered more encouragement with like-for-like sales increasing 8.0% in the four months to 31 October 2019 driven by a strong performance from the core Practices Division, which has seen like-for-like sales increase 7.4%.

It’s also reassuring to note that employment costs and vet vacancy rates have remained stable and only one acquisition has been made since September 2019.

The latest update cautioned that comparatives become more challenging in the second half of the current financial year given the improved second half performance seen in the previous financial year but it all sounds a lot more promising than 12 months ago.

While the shares still remain well below previous highs, they have performed strongly over the past 10 months rising over 170% from lows.

Having assessed the holding on numerous occasions over the past 18 months, our patience and ongoing commitment has been well rewarded…..up to now.

Hopefully onwards and upwards!

To find out more about other investment opportunities on AIM, the Main Market or overseas markets, contact Chris or Stephen on 01923 713890 or email [email protected]

The nature of investing in AIM for Inheritance Tax planning purposes is that investors must directly hold shares in the underlying AIM companies, albeit via a broker’s nominee arrangement. The Inheritance Tax planning benefits would be lost should investment be made via a fund or investment trust arrangement where the investor simply holds shares or units in the underlying fund or investment trust.

This method of direct investment has the advantage that the investor has full knowledge of exactly which stocks he or she is holding and how each is performing. This contrasts with the typical fund arrangement where normally only the largest holdings (typically the top ten) are disclosed by the fund manager.

The portfolio approach means investors are also privy to all the transaction details and therefore have full knowledge of the manager’s actions.

The suspension of the Woodford Equity Income fund, where 300,000 investors have been prevented from accessing their cash since June, has highlighted the problems with investment in open ended funds, where fund managers, administrators, custodian’s and regulators sit between investors and their money. Furthermore, investors have little knowledge of managers trading activity and the complete picture of where performance is really coming from. Indeed, the opaque nature of fund investment appears at odds with the information age in which we live and the demand for greater transparency.

While a portfolio approach is a requirement for investment in AIM for Inheritance Tax planning purposes it can equally apply to general investment portfolios. Fundamental Asset Management’s general investment portfolios, supported by our in-depth research and a good dose of common sense, have delivered excellent performance over the past few years, benefitting from exposure to some terrific companies, both in the UK and overseas. Our clients have enjoyed success with the likes of Apple, Games Workshop, Microsoft and Nestle, to name a few.

With trading costs a fraction of what they used to be and portfolios free of the additional burden of administrators fees and other excessive costs carried by funds, it’s a great time for portfolio investors.

We would argue that it’s also far more enjoyable and reassuring to have full knowledge of one’s investments and to experience the thrill of some terrific stock selections and of course the disappointment of the occasional mistake!

To find out more about our high performing portfolios call Chris or Stephen on 01923 713890

Investing in the shares of qualifying AIM companies can attract 100% relief from inheritance tax and is a proven tax planning method, avoiding the costs associated with a trust, or the risks associated with gifts. It’s also been a rather good investment strategy to follow, as long as you know what you are doing!

Fundamental Asset Management’s AIM portfolios can also be accessed through many leading adviser wrap platforms, including Transact, Standard Life Elevate and Nucleus, making it a viable tax planning solution for advisers who don’t want the adminstrative burden of administering assets on multiple platforms.

Supported by extensive in-house research and due diligence, we have successfully managed AIM portfolios for Inheritance Tax planning purposes since 2004, delivering outstanding growth, well ahead of mainstream funds and stock market indices. We have also helped families save large amounts of Inheritance Tax in the process.

However, it hasn’t all been plain sailing and over this period we have experienced everything that AIM has to offer, from the highs of AB Dynamics, whose shares have risen over 2500% since listing six years ago, to the lows of Patisserie Holdings, a café chain worth £400m which succumbed to a massive fraud and disappeared overnight.

We have seen it all, from the boom times of 2007, when AIM had nearly 1700 companies, to the depths of the financial crisis, which saw many investors abandon AIM entirely.

Come and join us on 2nd October 2019 at the Landmark Hotel, London (www.landmarklondon.co.uk) to find out what investing in AIM for Inheritance Tax planning purposes is really all about.

Numbers are limited so please RSVP by emailing [email protected] to reserve your place at this FREE event.
Alternatively, please call 01923 713890.

Venue: Landmark Hotel. 222 Marylebone Rd, Marylebone, London NW1 6JQ

The Office of Tax Simplification (‘OTS’) published its long-awaited review on reforming Inheritance Tax. A first report released in November 2018 dealt with the administration of estates while the latest report focuses on how Inheritance Tax could be made “easier to understand and more intuitive and simpler to operate”.

The stand-out headlines in the latest report were recommendations to reduce the seven year rule for gifting assets to five years and to increase the lifetime gift allowance from the current £3,000 to something more meaningful.

The press has also been keen to jump on a mention in the report of Business Property Relief (‘BPR’) and whether the treatment of AIM shares is within the policy intent of BPR.

Paragraph 5.19 of the report states:
…in relation to third party investors in AIM traded shares, BPR is not necessary to prevent the business from being broken up or sold in order to fund the payment of Inheritance Tax. This raises a question about whether it is within the policy intent of BPR to extend the relief to such shares, in particular where they are no longer held by the family or individuals originally owning the business.

Firstly, it should be emphasised that this was only an ‘observation’ and no further reference was made to AIM in the report in the conclusions or recommendations. However, in our opinion the report makes a reasonable observation regarding AIM.

BPR has never been wholly relevant to AIM in terms of preventing a business from being broken up or sold in order to fund the payment of Inheritance Tax. The relief in respect of smaller listed growth companies, is surely in place to attract third party investment and there are indications that the Treasury has always considered it thus. This is backed up by paragraph 5.18 of the report which states:

The OTS notes that the government’s response to the Patient Capital Review consultation published in November 2017 stated the government’s commitment to protecting the important role that BPR plays in supporting family owned businesses and growth investment in AIM and other growth markets. In correspondence and meetings, the OTS has heard evidence of its importance in meeting that objective.

To reiterate, contrary to what has been suggested by some of the more sensationalist headlines in the mainstream press, the OTS report has not recommended the removal of BPR on AIM. 

However, the OTS report has recommended that estates should not benefit from Capital Gains Tax dying with the deceased if the same assets in the estate are also benefitting from an IHT relief or exemption. In this regard Recommendation 5 on page 44 states:

Where a relief or exemption from Inheritance Tax applies, the government should consider removing the capital gains uplift and instead provide that the recipient is treated as acquiring the assets at the historic base cost of the person who has died.

The Treasury has said it will respond to the report in due course and consider its recommendations.

Last year’s Patient Capital Review highlighted a huge gap in funding in the UK for smaller growth companies and the removal of BPR on AIM will only exacerbate this, therefore we remain cautiously optimistic that radical changes are unlikely.

I think it’s worth reflecting that AIM as a viable Inheritance Tax planning option would not exist at all if the investment credentials didn’t stack-up in the first place.

Our AIM for Inheritance Tax portfolios have materially outperformed leading stock market indices for many years due to the compelling growth characteristics of the companies in which we invest, which just so happen to be accompanied by an attractive tax benefit for UK shareholders.

Successful AIM companies like RWS Holdings, AB Dynamics and many others have not seen their share prices rise due to the weight of demand from those investing for IHT planning purposes, they have risen based on the performance of the underlying businesses.

The great benefit of AIM is that it is market where share registers are dominated by family, founders and senior management.

Studies from Credit Suisse, Boston Consulting Group and Bain & Company have highlighted how superior growth and returns have been a feature of family and insider-controlled companies.

The great risk with a tax change of the type feared is if it pushes executive founders to sell early and exit the business, thereby depriving it of a valuable asset. For example, both RWS Holdings and AB Dynamics have benefited from the ongoing involvement of founder shareholders; Andrew Brode, Exec Chairman of RWS, has not sold a share since the business listed on AIM in 2003.

You can find out more about our high performing AIM portfolio service from the link here

A new report from national accountancy group UHY Hacker Young highlights the tax saving benefits of investing in AIM quoted companies – there are considerable investment benefits as well!

According to UHY Hacker Young, HMRC forecasts show that the value of “Business Property Relief” is expected to rise 8% in 2017/18, from £655m in 2016/17.

Taxpayers are expected to reduce their Inheritance Tax (IHT) bills by 12% over the next year, or a record £710m in 2017/18, through investments made in unlisted companies and other business assets, says UHY Hacker Young.

Investments in qualifying AIM listed companies, Enterprise Investment Schemes (EIS) and other private companies have become increasingly popular over recent years as these assets are often exempt from IHT.

Investors have also benefited from exceptional investment gains as AIM has materially outperformed the main stock market over the past few years. This is reflected in the outstanding performance of AIM portfolios managed by Fundamental Asset Management and other providers.

– Scope to use BPR further

Latest figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 28 2018, up from £4.7bn in 2016/17*, suggesting that there is scope to use BPR to further lessen tax bills.

Mark Giddens, Partner at UHY Hacker Young, says: “The Government has reduced the scope of legitimate tax planning opportunities over the years especially for higher earners – so the few that are left are increasingly popular.”

“Encouraging investment in AIM shares and other unlisted companies is good for the broader economy as they create growth and jobs.”

“High inheritance tax bills have become a concern but there are steps that can be taken to cut the tax bill.”

The Publications section of our website contains more information on our high performing AIM portfolio service