AIM turns 21: how the index has grown up over the past two decades
June 19 marks the 21st anniversary of the launch of the Alternative Investment Market (AIM) and two decades on the index has undergone some rapid changes.
Created as a junior division of the London Stock Exchange to act as a platform for smaller and growing companies to raise capital, the index launched in 1995 with just 10 UK-listed companies, which had a combined market cap value of £82.2m.
Some 21 years later 3,600 companies globally have at some stage chosen to join AIM, while according to the London Stock Exchange’s latest statistics there are currently 829 UK and 187 international listed companies on the index with a combined market value of £74bn.
With growth like this the Share Centre’s investment research analyst Graham Spooner says you could argue that AIM is possibly “the most successful growth market in the world”.
Owing to the changing features of its constituents, alongside two decades of stock market movements, Spooner notes the index has changed considerably since its launch, a date at which Unchained Melody by Robson & Jerome was number one in the UK and Apollo 13 was the most popular movie.
He says: “There’s no denying that AIM remains popular among private clients who are excited by smaller companies and willing to accept a higher level of risk.” This appeal was boosted in 2013 when it was announced that AIM stocks could be put into an ISA, followed by a decision in 2014 by the government that they would be free of stamp duty tax.
Reward doesn’t come without risk
However it has not been plain sailing for the index. For example not one of the 10 stocks listed on AIM at launch survived the first year, leading to the notion that alongside housing some hidden gems, there is also a lot of toxic waste in the index that investors have to wade through.
When it comes to companies listing, there are few requirements in respect of minimum trading history, market capitalisation or liquidity. While greater regulatory flexibility makes it easier for smaller companies to list, it also leads to significantly increased investment risks.
For example in 2007, US securities regulator Roel Campos likened AIM to a casino, stating: “I’m concerned that 30 per cent of those that list on AIM are gone in a year.” His words seemed prophetic the next year, when AIM was plagued by high-profile scandals, and lost 60 per cent of its overall value.
“The index is large and diverse, and by its nature it contains riskier companies than the broader index, making stock picking much more important,” says Spooner.
Today’s top dogs
According to Spooner the top five companies at present on AIM, based on market cap, are ASOS, New Europe Property Investments, GW Pharmaceuticals, ABCAM and Hutchison China Meditech.
“The most popular AIM companies at The Share Centre, based on the number of trades made by our customers in 2016, are 88 Energy, UK Oil and Gas Investments, Sirius Minerals, Breedon Aggregates and Metal Tiger,” he adds.
Below Spooner highlights three AIM companies on its ‘buy’ list for investors to consider:
“Breedon provides various aggregates to the construction and building industry and so it is likely to be a direct beneficiary of increased infrastructure spending, which the group are expecting to grow strongly through to 2018. Recent acquisitions should help the company expand its geographical presence in the UK and investors should appreciate that management expect a significant and improving contribution to come from these acquisitions. Breedon Aggregates is a smaller AIM-listed company that is geared to a recovery in infrastructure spend and for higher risk investors prepared to take a longer term view.”
“The group is the producer of a wide range of baked goods for supermarkets, wholesalers, caterers and restaurants. This diversity gives the company exposure to potential growth in a number of key areas. Finsbury Food is now seeing strong benefits of the recent acquisitions beginning to flow through and its restructuring has enabled it to reduce production costs and lower debt levels substantially. Due to the potential from the recent acquisitions, its diverse customer base, good relative value and the helpful underlying economic picture of rising wages and low inflation, we believe Finsbury Food is suitable for higher risk investors, seeking growth.”
“Stadium Group has been changing its focus of late, which has resulted in restructuring and cost cutting in order to become a leading provider of niche integrated electronic technologies, with capabilities to design and manufacture for specific customer needs. The company has been encouraged by a strong order book and future opportunities and investors should appreciate that the strong trading experienced in 2015 has continued into 2016. We also like the progressive dividend policy, which is not always the case for AIM companies. This is a higher risk investment opportunity for investors with a balanced portfolio.”