AIM as a stockpicker's market

The Alternative Investment Market (Aim) is one of those markets that divide opinion. 

Many private investors believe in the high growth investment opportunities to be found on Aim and appreciate the generous tax benefits available from investing in the market.

However, the majority of investors still avoid Aim, because of the all-too-regular horror stories surrounding individual company failures and the pretty abysmal headline performance of the Aim Index over the past 20 years. 

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So which is right? The short answer, as far as I am concerned, is that both views have valid points. 

The poor performance of AIM is well documented. Since inception in 1995 the Aim Index has returned -1.6 per cent on an annualised basis; hardly stellar returns.

Then there are the stories of high profile failures like Quindell and African Minerals, as well as concerns over the lack of regulatory oversight within the market. 

It is true that the regulation and listing requirements for companies seeking a listing on Aim is less onerous than those for companies seeking a main stock exchange listing.

For instance, unlike a full listing companies are not required to produce financial records for at least the past three years nor do they need a minimum market capitalisation among other things. 

But there is a far more positive side to the Aim story that deserves to be heard too. Part of the rationale behind the less onerous regulatory framework was to create a more flexible environment in which smaller, less mature companies could raise capital.

Since its launch over 20 years ago the Aim market has helped over 3,500 companies to raise capital through listing on the index. While many other junior markets have failed, Aim has continued to grow from representing just 10 companies at inception to over 1,100 today. 

Aim continues to be supported by the UK government, in that it clearly recognises the stimulus Aim provides in employment creation and capital funding. As a result, tax benefits remain attractive to private investors.

Despite recent EU imposed legislation; certain constituents of the Index still qualify for the government’s tax-advantaged legislation (for VCTs and EIS), while the abolition of stamp duty and allowing investors to access AIM through their Isa has helped to attract a broader range of investors and their capital to the market. 

For those investors willing to do the work, Aim presents an opportunity to find an investment with the potential for significant returns. Many of the companies listed on Aim do not have the same level of research and broker coverage that is afforded to companies listed on the mainstream markets.

It is a market of opportunity and risk, and for investors willing to diligently sift through the whole market there are real nuggets to be found.