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What drove AIM’s outstanding performance in 2020…

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 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.

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 unfortunately looks set to lose Codemasters as it is being acquired by US giant Electronic Arts. It will be 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.

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!

Please join us at our next Adviser Webinar where we will be considering potential AIM themes to follow in 2021. 

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.


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AIM on platform.. why wouldn’t you?

Last year’s unwelcome introduction of Covid into our everyday lives saw several trends and behaviours emerge. Family solicitors are seeing a significant increase in requests for will writing. And financial advice is no different, with financial advisers seeing an increase in demand for Inheritance Tax Planning (IHT) solutions.

Historically, IHT solutions had only been available directly with investment managers, with advisors forced to direct assets off their designated wrap platform in order to access these. This can be to the detriment of advisers and their underlying clients, as it makes management and monitoring, among other things, more difficult.

Adviser platforms have now evolved to allow clients to invest in individual stocks, including those listed on AIM, the London Stock Exchange’s smaller companies growth market. Many (but not all) AIM shares qualify for Business Relief, which means that if they are held for two years and until death, the holder of the shares is able to mitigate 100% of their potential IHT bill.

Platforms further evolved to allow Discretionary Fund Managers (DFMs), such as Fundamental Asset Management, to manage portfolios of AIM stocks on platform on behalf of clients. This means you can offer AIM for Inheritance Tax planning solutions to your clients and keep their assets in one place, thereby retaining the benefits a platform has to offer.

But what are the benefits?

Costs

Platforms have grown to become the dominant force in asset administration for retail clients and financial advisers in the UK. They are in a formidable position to take advantage of scale in terms of pricing. This is something they do well, allowing clients to benefit from reduced dealing, product, custody and investment costs.

Investments

Investment options for retail clients can often be limited due to the small amounts they are generally looking to invest. However, the growth of platforms has effectively made them the key distribution method for investment managers in the UK. As well as being able to negotiate preferential fees, they can give clients access to investment products they would not normally be able to access by going directly. As a result, clients benefit from a wider pool of investment options at a cheaper price.

Administration

Platforms in their most basic form are a technology which allows a financial adviser to retain and manage assets on behalf of their clients. Advisers benefit from being able to manage everything in one place, reducing time on administration and allowing for more time to be spent with clients. The platform technology itself allows advisers to take advantage of an advanced reporting system. On top of this, platforms are increasingly evolving to support and integrate adviser back office systems, including client portals. Platforms also facilitate custody which removes an element of risk from an advisor’s business model.

The benefits are clear for clients and advisers. However, platforms are also beneficial for investment managers like Fundamental.

The ability to manage client portfolios in one place and to remove custody risk from our own business model is a key advantage. As such, we are committed to the IFA and platform markets and work closely with our platform partners, including Standard Life Wrap, Elevate, Nucleus (listed on AIM), Transact, Ascentric, Funds Network and CoInvestor.

Enjoy your weekend!

Derek McLay; Business Development Manager; 077437 25659/ [email protected]

Join me and the Fundamental Asset Team at our next adviser webinar where we will be discussing another record-breaking year for AIM and what could be in store for 2021. 

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.


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CoInvestor Virtual Manager Showcase

Listen to our Business Development Manager Derek McLay give an 8 minute pitch on what makes Fundamental Asset Management different at the CoInvestor Manager Showcase on 15th December 2020.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years. You can find our latest factsheets, from the link here.

If you would like to find out more about Fundamental’s AIM portfolio service you can contact Derek directly on 07743725659 or [email protected]

Thank you for watching, The Fundamental Asset Team


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Investors beware – fairy tale investing is here

London’s AIM market has performed strongly over the pandemic, materially outperforming the main UK stock market, which has now been the case for several years.

In this interview with Jeremy Naylor of IG markets, Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, discusses the performance of several companies whose shares have soared over recent months, and asks where they could go from here given the elevated valuations.

He also considers the unusual ’investing’ environment, where profit and return now appear to be of secondary importance to many investors as they seek out the next great idea.

Companies covered in the interview include:
Abcam (ABC)* 2 minutes 10 seconds
Codemasters (CDM)* 3:38
GB Group (GBG) 5:56
GlobalData (DATA) 8:21
Fairy tale valuation methodology and concept investing 10:30
D4t4 Solutions (D4T4) 11:56
Watkin Jones (WJG)* 14:26
Elixir International (ELIX)* 18:21

* Existing Fundamental portfolio holdings

You can find out more about Fundamental’s AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns for more than 16 years.


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Watershed event for AIM

The proposed acquisition of main market listed SDL (LON:SDL) by AIM quoted RWS Holdings (LON:RWS) is, in our opinion, a watershed moment for AIM, as an AIM company acquires a sizeable main market listed peer, but the combined group reamins on AIM.

RWS is one of the world’s leading language, intellectual property support services and localization providers. While those don’t sound like the most thrilling of activities RWS has delivered stunning results for shareholders over the years.

Chris Boxall discusses the deal in this video here.

Fundamental have been investors in RWS, whose headquarters is close to our own office, for about 14 years. Here is a brief history of its progress on AIM.

RWS arrived on AIM in October 2003 via a reverse into the previously named shell company Health Media Group.

The equivalent share price at the time was 22p and market capitalisation £45m. Fast forward nearly 17 years and the shares have risen nearly 2700% to 613p (they were as high as 767p this month), with the market capitalisation £1.8bn.

Through a mixture of organic, and more recently more acquisition led growth, RWS has developed into one of AIM’s largest companies.
RWS’s acquisition strategy really accelerated in 2013 with the acquisition of inovia Holdings, a leading provider of web-based international patent filing solutions.

It followed this in November 2015 with the sizeable acquisition of Corporate Translations for US$70m. CT was the world’s leading life sciences translation and linguistic validation providers.

February 2017 saw the acquisition of LUZ, a market leading Life Sciences language services provider based in San Francisco, for a cash consideration of US$82.5m. To support this meaningful acquisition, it raised gross proceeds of £40.0m at 330p per share.

In Nov 2017 it acquired Moravia, a leading provider of technology-enabled localisation services, for $320m. Localisation is the adaptation of content, software, websites, applications, marketing materials and audio/video for hundreds of languages and geographies. It requires the translation and customisation of clients’ content and platforms for cultural conventions, compliance with local regulations and consistency of brand style and tone.

For the half year ending 31 March 2020, Moravia represented 47% of RWS’ group revenue of £170m and 34% of the group’s operating profit.
Smaller acquisitions followed in 2019 and June 2020, culminating in this week’s deal to acquir main market peer SDL Group in a £700m all-share deal.

The combination of SDL and RWS will create the world’s leading language services and technology group with capabilities across a range of language services and IP services, combining the complementary strengths of RWS’ specialist technical translation and localisation capabilities with SDL’s software, machine translation and AI capabilities.

It will support an expanded blue chip customer base with limited overlap across its core markets, including 90 of the world’s top 100 brands by value, all the top 10 pharmaceutical companies globally, many of the major West Coast technology businesses, and approximately half of the top 20 patent filers worldwide.

The RWS name will be retained for the combined group which will continue to be headquartered in Chalfont St Peter and remain listed on AIM, which is good news for those holding shares in RWS for the Inheritance Tax planning attractions, including many of our clients.

The combination should put SDL’s technology to better use thereby enhancing margins, which in the case of SDL, have been somewhat ordinary – while the two businesses had similar revenues in 2019, RWS’s operating margins were more than double those of SDL. Pro forma FY2019 revenues are £732m and pro forma adjusted operating profit £116m, imply a combined operating margin of 15.8%.

What has been constant in RWS’ journey has been the presence of Chairman Andrew Brode, who retains a near 33% stake in the current business and to our knowledge has never sold a share. We are reassured that, with so much of his personal wealth at stake, Mr Brode would have thought long and hard about this deal. The Inheritance Tax planning attractions are no doubt an incentive for him to keep the group on AIM!

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.


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Good few weeks for our portfolio companies

Despite their obvious appeal and relevance in our lives, many UK investors surprisingly have little direct exposure in their portfolios to leading US technology groups, preferring instead to invest via a collective investment scheme.

We find it surprising that while much of the UK population is happy to use Amazon, Google, Apple iPhones etc, it isn’t interested in owning some of these fantastic companies. That’s why our general bespoke portfolios, as well as our new Ultimate Stocks portfolio, holds shares in the companies discussed below.

The significant outperformance of the US stock market over the UK over virtually any time period you care to mention, suggests that as reluctant investors in the US market, UK investors are at a distinct disadvantage and destined to underperform. The main UK market is also lagging AIM over recent periods, which isn’t surprising given AIM’s abundance of growth opportunities compared to the many dinosaurs roaming on the UK main market.

Our long term general portfolio holding Microsoft opened results season with its quarterly results last week, reporting 13% growth in sales to $38 billion and profits of $11.2 billion, both ahead of expectations. Having closed the June quarter with $136 billion of cash it certainly has plenty of resources at its disposal, with video app TikTok rumoured to be a potential acquisition target.

Despite the closure of its stores around the world, portfolio holding Apple’s revenues for 4th quarter rose 11% to $59.7bn, a new record and significantly exceeding forecasts of a 3% decline. With a growing portfolio of excellent products and an attractive services business, Apple continues to look in great shape buoyed by a huge cash pile.

Google’s holding company Alphabet was the only one of the big tech titans to report declining numbers, although even these were better than revised expectations as many feared a more significant Covid related decline in advertising revenue.

The Ultimate Stocks portfolio, launched in conjunction with our associates Investors Champion, offers a simple and transparent route for UK investors to gain exposure to these and many other exciting companies.

Moving away from the US, it is great to be able to report positive news from plenty of our AIM holdings, many of whose services and products we also use and come across in our daily lives.

Jarvis Securities, the provider of stockbroking and financial administration services, recently issued fantastic interim results supporting a material increase in its dividend. Jarvis’ “Model B” outsourced arrangement is a great solution for small investment management firms and Fundamental is a client.

Gamma Communications, a provider of communications services to business markets in the UK and Europe, issued a very positive trading update with management now anticipating that full year will be ahead of estimates. With 93% of revenue recurring GAMA is in great shape and well-placed to continue to thrive. Fundamental uses Gamma’s horizon telephone system.

dotdigital, the leading ‘SaaS’ provider of marketing automation confirmed that the pandemic had a minimal impact. Having proved itself in the toughest of markets and with continuing momentum online supported by some fantastic partnerships, dotDigital appears to have an exciting future ahead. While we aren’t currently a client, we have always been impressed with its dotmailer email offering.

Satellite holding Property Franchise Group confirmed a strong performance across the half year as well as a return to growth in the final month of the period which has continued into July. EweMove, its hybrid online/physical sales and lettings brand, set new records for sales listings in June. Those considering a house move should considering using Ewemove.

CVS Group, one of the UK’s leading providers of veterinary services, provided a comprehensive assessment of business over the past few months. The soaring demand for pets over lockdown could offer a big post Covid-19 boost to CVS and the veterinary sector as a whole, and the difficulties experienced by small independent practices may also see an acceleration of the consolidation which could also benefit CVS. The market was clearly impressed, sending the shares up sharply.

Quartix, the supplier of vehicle tracking systems, announced impressive interim results highlighting the attraction of its long-term subscription-based model.

IG Design Group, one of the world’s leading designers and manufacturers of gift packaging, celebrations, stationery and Christmas crackers, reassured with its full year results. As a business serving over 210,000 stores for over 11,000 customers in over 80 countries, IG has a better picture than most of the market environment.

Commercial flooring manufacturer James Halstead’s primary concern was cash flow when the world went into lockdown. With trading conditions improving and the cash position robust they feel able to commit to a second interim dividend. All of us are likely to have walked on James Halstead’s Polyflor flooring at some time in our lives!

Smart Metering Systems, which installs and manages smart meters and carbon reduction assets, chose the perfect time to sell a portfolio of meter assets prior to the pandemic disrupting things. Its latest trading update confirmed that revenue and underlying profit would in line with expectations, reflecting the resilient nature of its business model and index linked recurring revenue.

Moving away from AIM, general portfolio holding Games Workshop, the fantasy games group which is also a constituent of the Ultimate Stocks portfolio, issued excellent results, despite the pandemic shutting down its business for 6 weeks. The extensive results statement is worth a read to gain a full understanding of this unusual high-performing business. The shares moved back to all-time highs and despite the valuation there could be plenty of growth potential in overseas markets.

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.

Fundamental portfolios hold shares in Alphabet, Apple and Microsoft. For a full assessment of results from all the big technology groups please visit or associated Investor’s Champion site. Fundamental clients get free subscriber access to all premium content.


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In case you missed us..

Find out from our Co-founder Chris Boxall where the opportunities are in AIM and why this is a market you should be considering for growth and not just the Inheritance Tax planning benefits.

Click anywhere on the picture below to take you straight to the recording.

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.

 


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In case you ask..

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.


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Value of AIM to the UK economy significantly outweighs cost of modest tax concession

An excellent report from specialist growth company research house, Equity Development, has highlighted the huge benefits AIM brings to the UK economy and how the mild encouragement provided by the Inheritance Tax concession to those considering an IPO onto AIM is a very large multiple of the cost in tax foregone by HMRC. We would urge you to read the report from the link here.

Equity Development considers AIM companies contribute over £33bn Gross Value Added (GVA) directly – over 40% more per employee than the national average – and just as much indirectly to the UK economy since their direct GVA has increased by 35% in the last five years, more than twice as fast as the average. Not only are AIM companies more productive than average, their productivity is growing – at 11% pa, significantly faster than average.

A report by Grant Thornton on AIM’s first 25 years shows that small companies listed on AIM perform ‘better’ – generating more added value, more employment and far greater tax receipts for HMRC – than comparable “private” companies. Grant Thornton found that:

• In their first year on AIM companies on average grew profits by 36%, and by 24% per annum for the next four years.

• Revenues grew 40% p.a. for three years, then 20% p.a. for the next two. Over the last five years AIM companies have outgrown, by a significant amount, the “private” companies in their sectors in nearly every case

AIM’s superior growth has, in just the last five years, added £4.7bn pa to UK economy and more than £1bn per annum to HMRC. But you may ask, at what cost?

The IHT concession is not a precise sum that can be easily calculated, but Equity Development reckons it ‘costs’ the Treasury c. £50m pa.

Like us, Equity Development questions why HMRC would abolish Business Relief (on which the IHT reliefs are based) to gain roughly £50m at a probable future cost to themselves exceeding £1bn per annum. They also suspect that much of the publicity given to suggestions that Business Relief should be abolished comes from promoters of more expensive, less useful IHT-avoidance schemes who are losing customers to simple AIM IHT ISAs. We have experienced on numerous occasions at first hand the added complexity and cost, including outrageous legal fees, imposed on relatively small estates with trust structures in place and would urge investors to think carefully before going down this route.

Not only is AIM of huge benefit to the UK economy but AIM listed companies represent the primary source of growth for UK small cap investors, reflected in the significant outperformance of AIM for IHT managers, including Fundamental, over the past decade or more.

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.


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Chris Boxall on the attractions of AIM on its 25th birthday

On the day AIM celebrates its 25th birthday, Chris Boxall, co-founder of AIM investment specialist Fundamental Asset Management, covers recent news from AIM companies, AIM’s growth attractions for investors and the issue of Inheritance Tax reliefs. Companies mentioned include Best of the Best, boohoo, Idox, Team17, Blue Prism and many of AIM’s pharma biotech groups involved in developing Covid-19 tests.

www.fundamentalasset.com