At a time when speculation continues over the future of pension tax relief, Aim shares’ own benefits could yet fall under the scrutiny of a government keen to boost revenues ahead of Brexit. The counterargument is that policymakers may not want to be seen to contribute to funding being pulled for small businesses – a probable consequence of any such tax U-turn.
Pitfalls
Paul Parker, head of the intermediary portfolio management team at Canaccord Genuity, emphasises investors should also be aware that not all Aim shares qualify for the IHT exemption. The tax relief only applies if the company in question is eligible for BPR, and companies such as investment trusts, and businesses that derive most of their revenue from rental income from property investments, do not qualify.
There are other potential warning signs when it comes to governance. Unlike shares listed on the main market, there is no requirement for Aim-listed companies to have at least 25 per cent of their shares available to trade. Nor is there any minimum period for which the company must have been in existence prior to listing – this is set at three years for shares listed on the London Stock Exchange (LSE).
Mr Hollands points out that businesses are also under no obligation to have their documents “pre-vetted” by the LSE or UK Listing Authority ahead of an initial public offering (IPO). Companies are not typically covered by research analysts, either.
The extra work that needs to be done in order to invest in these stocks means that Aim-focused portfolios do tend to come with hefty annual charges of 1 to 2 per cent. But for well-resourced fund managers, many of the caveats listed above can prove advantageous.
Dan Nickols, who runs UK small-cap portfolios at Old Mutual Global Investors, says his exposure to the Aim market has almost trebled in the decade since the global financial crisis. “That isn’t the result of any strategy or plan of mine, it is just something that I noticed happening year on year,” he says.
“The reason is that Aim is now the market of choice for UK IPOs because the level of regulation is a little bit lower, and because investors on Aim are perhaps a little bit more open to innovative ideas.
“For companies, maybe those in the technology space or generally, the level of paperwork they would have to do to list on the main market can be quite time consuming and onerous. We view our job as doing due diligence on these companies, and of course we do that, but generally speaking we don’t treat companies on Aim any differently to companies on the main market.”
