Downing AIM Estate Planning Service ISA
The Downing AIM IHT ISA portfolio aims to make long-term investments into smaller, often unloved, AIM-quoted businesses available at an attractive valuation. The team frequently buys material minority shareholdings and looks to exert some influence over the management to help to turn the business around and boost value in the shares. This is a highly active and hands-on investment approach, which is rare when investing in AIM-quoted companies.
The £81 million AIM IHT portfolio is run by the Downing public equity team, which manages a total of £333 million (as at 31 March 2021) across a range of investment funds, all broadly following the same investment philosophy. The AIM IHT ISA portfolio is, however, more diversified, with additional exposure to larger and more mature businesses which should help mitigate risk.
In addition, investors can benefit from built-in downside protection insurance for at least the first two years, designed to cover the first 20% of losses on the net initial investment on death, for investors below the age of 90. There is also optional life cover.
The offer might appeal to investors wishing to add diversification to an existing AIM portfolio. This portfolio could be complementary to others that invest in larger AIM companies.
- Includes downside protection policy – insures against the first 20% of losses in the event of death in the first two years
- Optional life cover protection for two years is also available at extra cost
- Focus on smaller-end of the AIM Market
- Highly active approach
- Established investment team headed up by Judith MacKenzie, who has 20 years’ investment experience
- Minimum investment £20,000 (£10,000 existing investors)
- Available both in an ISA and outside an ISA
- Apply online (ISA only)
Downside protection cover and optional life cover
Investors in the Downing AIM IHT ISA service can benefit at no extra cost from a downside protection policy underwritten by an A-rated insurance provider.
Key details of the cover are:
- The policy is designed to cover a loss in value of up to 20% of net initial investment, after fees, for at least two years
- Cover is for all subscribers under the age of 90 at death
- There are no exclusions for pre-existing medical conditions
- There are no medical questionnaires
- There is no additional cost to investors: the premium is paid by Downing
There is also a separate and optional life cover policy for the first two years, which effectively makes the portfolio IHT free from day one. The policy pays 40% of the gross subscription (including all fees) in the event of death within the first two years. Investors that opt for the life cover policy will only start benefiting from the downside protection cover after two years.
Downing LLP was founded in 1986 and is a specialist investment management business with a focus on tax efficient investments. Today, the business has over 25,000 clients who collectively have over £1.2 billion invested with Downing.
The public equity team is headed by Judith MacKenzie, Partner and Head of Public Equity. She has 20 years’ experience investing in small UK businesses. Judith is supported by three fund managers and an investment analyst. Together they manage £333 million across a number of UK equity investment mandates, £81 million of which the Downing AIM IHT & ISA service.
Watch Judith MacKenzie in our AIM manager roundtable:
The Downing public equity team aims to invest in companies when it believes they are undervalued and there is a catalyst for the company to recover. Companies often become undervalued when there is a perception something is wrong with them, which prevents investors from taking a closer look, causing, in turn, the shares to trade cheaply. For this reason, value investing is not for the fainthearted as some companies in this category may be in financial distress.
The team takes value investing one step further. It looks to buy a material minority shareholding so as to be able to influence the company management with the aim of unlocking potential value in the company. This can involve working with other institutional shareholders to appoint a new management team with a new strategy, sell off non-core assets, restructure the business, or put in place long-term incentive plans.
This strategy is applied across all the funds the team manages. However, to temper the risks the strategy entails, the AIM IHT ISA portfolio includes some larger, more mature companies.
Current portfolio overview
The portfolio currently contains approximately 25 companies, spread across a variety of sectors and the market cap spectrum. There is a skew towards industrial support services and electronics, which together account for 37.3% of the portfolio.
The service has a bias towards smaller AIM stocks, over half the portfolio is currently invested in businesses valued at £250 million or less. The service does not have any exposure to AIM stocks valued in excess of £1 billion (March 2021).
The chart below shows the portfolio sector breakdown for the top 10 sectors, which together account for c.94% of the portfolio.
Source: Downing, as at 31 March 2021.
Examples of portfolio companies
Volex is a global supplier of power cords and cable assembly solutions, providing either contract manufacturing or product development services.
Volex is an example of a turnaround situation favoured by Downing. Before investing, the business had undergone several years of chronic underperformance. The share price had fallen from £3.77 in 2010, to just 28p in 2016. Downing believed Volex had lost its way under the direction of a succession of weak boards following multiple changes in both management and strategy resulting in the company becoming unfocused and mismanaged.
In 2015, Nat Rothschild bought a 25% stake in the business and appointed himself Executive Chairman. He introduced several changes, including cutting loss-making contracts, rationalising the cost base, seeking new markets, and rolling out an acquisition strategy to consolidate smaller cable assembly businesses. Whilst other Downing investment mandates invested in Volex at an earlier (and riskier) stage of this transition, the IHT service backed the company during a fundraising at 75p per share in 2018. Recent financial results have been encouraging, and the recovery in Volex appears to be underway (not guaranteed). The share price was 337p as at 31 March 2021. Please note, past performance is not a guide to the future.
Volex Plc is currently the largest holding within the AIM IHT ISA portfolio.
James Latham Plc
In addition to the team’s strategic investments in companies undergoing some form of turnaround, Downing also looks to back what it views as attractively valued more mature businesses which could provide some ballast to the portfolio. An example is James Latham Plc. The company dates back to 1756 and is one of the UK’s leading distributors of timber products. The business operates from 12 locations across the UK and Ireland. In its latest full-year accounts to March 2020, the business made operating profits of £16 million on revenues of £247 million, earnings per share has grown from 53.7p to 63.1p over the previous five financial years, against a share price of £9.15 (as at 31 March 2021). Past performance is not a guide to the future.
Northbridge Industrial Services Plc
As is to be expected, not all investments work out. Northbridge Industrial Services Plc is an example. Northbridge is a provider of specialist industrial equipment and power sources to extreme environments across the globe. Past projects have included supplying power to oil fields and the Olympics. The business had previously been an acquisition vehicle and Downing liked its diversified nature. However, the business suffered following the downturn in oil & gas markets, as it became apparent it had more exposure to oil and gas than the company’s management team had initially believed. Downing sold its stake in the business, realising a 40-50% loss for investors. The downturn subsequently led to a series of profit warnings, and further share price declines for investors.
The Downing public equity team has a good long-term track record, however, the AIM service has been hampered by poor investor sentiment since 2016 as the wider market has appeared reluctant to back smaller UK-focused businesses, particularly those engaged in turnarounds, an area of focus for the strategy. The performance of the service is shown below to 31 March 2021. Like other IHT portfolios, this is a discretionary managed service so each portfolio is likely to be different.
The default view is the performance for this particular offer. You'll be able to see the performance of other AIM ISA offers if you click on the portfolio names above. Source: Downing and other AIM ISA managers. Performance is shown net of fees, excluding initial charges, with dividends reinvested, based on the average portfolio performance across the service, except for Puma and Fundamental which shows the performance of one example portfolio. Past performance is not a guide to the future. Dividends are variable and not guaranteed.
Access to your investment
Investors can request partial or full withdrawals from the portfolio at any time, subject to liquidity. In normal market conditions, Downing aims to fulfil withdrawal requests within ten working days but this is not guaranteed. For withdrawal requests greater than £30,000 Downing reserves the right to take longer as it may be required to ensure the orderly disposal of investments.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
AIM IHT portfolios are high risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
AIM stocks can be hard to sell, particularly at the smaller end of the market, and can be illiquid. Downing’s focus on smaller companies may emphasise this concern. Many firms are under £100 million by market cap. By their very nature, these are not only less liquid but also riskier. AIM shares can be very volatile especially if the market falls sharply. The difference between the buying and selling price of AIM-quoted shares is often wider than the spread for shares listed on the main market.
Tax rules can change and benefits depend on circumstances. Eligibility for BPR is assessed at the date of death and will depend on the companies in the portfolio remaining qualifying. Broadly speaking, you will need to have held a BPR qualifying stock for at least two years and still hold it on death to qualify.
There is considerable key person risk as Judith MacKenzie is central to the service.
A previous Chancellor requested a review of IHT to simplify the tax system. A report was published in July 2019, but this has not yet led to any rule changes. Please remember, tax rules can and do change and benefits depend on circumstances.
A summary of the main charges and savings is shown below. The investment may have additional charges and expenses: Please see the provider documents for more details. If you would like a full breakdown or a personal illustration, please let us know.
|Full initial charge||2%|
|Wealth Club initial saving||1%|
|Net initial charge through Wealth Club||1%|
|Annual management charge||2%|
|Optional life cover (two years)||2.25%|
See example of the total charges over 5 years
There are a number of interesting aspects to this AIM IHT ISA service. Firstly, it comes with a downside protection policy at no additional cost to investors. This is designed to cover a loss in value of up to 20% of the net initial investment for at least two years, provided the investor is under age 90 at death. The policy reduces some of the risks of investing in AIM, which might be appealing to some investors.
The service also benefits from a high-quality investment team. Judith MacKenzie is a highly regarded fund manager with two decades of experience investing in smaller companies. The team’s sole focus is investing in UK smaller companies. Past performance however is not a guide to the future.
The focus on smaller, and often unloved companies may bring diversification to existing portfolios of larger and more popular AIM stocks. For investors considering investing smaller sums into an AIM IHT service this year, the Wealth Club minimum of £20,000 could be attractive (previously £100,000) and the absence of dealing charges may offer cost savings.
See five-year performance of shares mentioned above
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Portfolio size
- £81.0 million
- Average market cap
- £222.96 million
- Initial charge
- Saving via Wealth Club
- Net initial charge