Fundamental AIM IHT ISA
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Fundamental Asset Management is a boutique investment management business. It has offered AIM IHT portfolios since 2004 and currently manages £120 million in its AIM IHT service (30 June 2021).
The business was founded by Chris Boxall and Stephen Drabwell, both experienced AIM investors and passionate fund managers. To date, they have a good track record; past performance is not a guide to the future.
Investors in the service can expect a portfolio of 20 to 30 holdings (subject to portfolio value) across a range of sectors. The service comes with a competitive fee structure, particularly for larger investors, and investors through Wealth Club benefit from lower initial charges.
ISA: apply online or top up
An AIM ISA lets you hang on to the ISA perks of tax-free growth and income yet also potentially pass on your ISA IHT free. This is thanks to Business Property Relief (BPR) which is available for certain AIM shares. If you hold the shares for at least two years and on death, under current rules they should be free of IHT. Tax rules can change and benefits depend on circumstances.
- 17-year track record of investing in AIM IHT portfolios
- “Core and Satellite” approach provides exposure to a core of larger AIM stocks as well as smaller companies with higher growth potential
- Wealth Club members benefit from a reduced initial charge of just 0.5%
- Also available outside an ISA
- Minimum investment £40,000 (existing investors £5,000)
Fundamental Asset Management Ltd (“Fundamental”) is a specialist investment management firm founded in 2004 and owned by investment managers Christopher Boxall and Stephen Drabwell, who are joint Managing Directors.
The business specialises in AIM IHT investment portfolios. It manages £120 million in this service (30 June 2021) and a further £15 million in other non-AIM IHT mandates.
Chris and Stephen are supported by two compliance and administration staff.
Christopher Boxall, Joint CEO/Portfolio Manager, qualified as a Chartered Accountant in 1989 and worked at Deloitte, where he focused on smaller companies in the UK and Europe. From 1991 to 1999 he was a senior adviser with a specialist business consultancy providing advice to small firms in the financial services, commercial and industrial sectors as well as a director of small private companies. From 1999 to 2004 he was a senior member of the investment management team of the Washington US Fund Ltd, a long/short equity fund investing in small and mid-cap companies. He was Chief Financial Officer of Washington Financial Group.
Stephen Drabwell, Joint CEO/Portfolio Manager, has worked in financial services for over 20 years. He was formerly with UBS as a sales trader on the portfolio trading desk and then at Washington Financial Group as a senior trader and a key member of the management team of the Washington US Fund, like Chris Boxall.
Jarvis Investment Management Ltd is the fund’s custodian responsible for the safekeeping of client assets. Jarvis has been established for over 30 years and is a member firm of the London Stock Exchange and an approved HM Revenue & Customs ISA Manager. Its parent company, Jarvis Securities plc, is quoted on AIM.
Fundamental adopts a ‘core and satellite’ approach to AIM. Core positions represent approximately 80% of the portfolio: these are larger, more liquid companies. Satellite positions are smaller by market capitalisation, less liquid companies, or newcomers to AIM.
Fundamental prefers companies where founders, family and senior managers hold significant equity stakes and dislikes management selling early in the growth journey.
Chris and Stephen believe, based on their experience, the majority of small AIM companies addressing low-growth markets will remain small, and ultimately generate poor returns for investors.
Key criteria for the fund are high operating margins, good returns on capital and strong cash generation, although Fundamental considers these traditional metrics to be less important in the case of smaller growth companies that may be rapidly evolving.
The portfolio currently yields approximately 1.2%, however, the dividend yield is not critical. Instead, the focus is on companies showing profitable, organic growth. Fundamental is not opposed to regular acquisitions but organic growth should underpin any acquisition strategy. Remember, yields are variable and not guaranteed.
Current portfolio overview
Investors can expect a portfolio of between 20 to 30 holdings (subject to portfolio size) across a range of sectors. Currently, the Fundamental AIM portfolio has an average market capitalisation of approximately £885.6 million (June 2021). The portfolio is well diversified with a bias towards Software and Computer Services and Industrial Support Services. Fundamental AIM ISA portfolios are managed on a discretionary basis so each individual portfolio can vary.
The chart below shows the portfolio sector breakdown for the top 10 sectors, which together accounts for c.82% of the portfolio.
There is a bias towards larger AIM-quoted companies. 74.9% of the portfolio is currently invested in companies with market capitalisations of greater than £250 million.
Source: Fundamental Asset Management, as at 30 June 2021.
Examples of portfolio companies
Advanced Medical Solutions Group – core holding
Advanced Medical Solutions Group (‘AMS’) is a world-leading developer and manufacturer of technologically advanced products for the global surgical and wound care markets. It has a wide range of products, including tissue adhesives, sutures and internal fixation devices, which it markets under its own brand names as well as manufacturing for others.
Having grown organically for many years, the AMS Group has recently used its considerable cash resources to acquire two innovative businesses. Fundamental believes AMS is a great business, generating high margins and making a significant investment in new products to support further growth. It sees long-term value, and a considerable protective moat, in the provision of high-performing consumable products for healthcare organisations worldwide.
Fundamental’s AIM portfolios have held shares in AMS for more than 11 years.
Property Franchise Group – satellite holding
The Property Franchise Group (TPFG) is one of the largest property franchises in the UK, with its network managing 55,000 properties. The Group’s origin is an estate agency started in Yeovil in 1987, which in 1995 began to franchise its business model.
The Group has since grown to a diverse portfolio of nine brands and over 550 outlets across the UK, comprising longstanding high-street brands and a hybrid, no sale / no fee agency.
There are several aspects to this business Fundamental favours. Group income is heavily weighted towards franchise management fees, so the business generates high margins and return on equity and enough cash flow to support both investment in the business and a good dividend payout. The EwMove hybrid estate agency brand is growing strongly and adds growth potential. The group has also launched a Financial Services division which could add further to growth.
Fundamental AIM portfolios have held shares in TPFG for more than four years, benefitting from share price appreciation and a growing dividend stream. Dividends are variable and not guaranteed.
As is to be expected, not all investments work out. Patisserie Valerie is a recent example. The business fell into administration following a well reported fraud. Fundamental undertook a considerable amount of research into the company’s activities prior to the fraud, visiting a large number of outlets in the south of England to assess trading.
The precise nature of the fraud has yet to be reported, however, there was clearly a severe lack of control and oversight by senior management. Fundamental considers that its failure, in this case, was a misjudgement of the abilities and background of senior management. Contrary to what was implied, the management of Patisserie Holdings had little real grass-roots knowledge of the sector and was essentially a mix of corporate financiers and promoters whose business interests were perhaps spread too thinly. Fundamental took the immediate decision to write down the position to zero on client portfolios when the fraud was announced to the market.
The chart below shows indicative performance for the Fundamental Asset AIM IHT service (based on one real but representative client’s portfolio) over the last five years against a peer group of other AIM ISA portfolios available via Wealth Club. Like other IHT portfolios, this is a discretionary managed service so each portfolio is likely to be different.
Five-year cumulative performance to 30 June 2021
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: Fundamental 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.
Five-year discrete performance
|AIM IHT portfolio||H1 2021||2020||2019||2018||2017||2016||Five years to 30 June 2021|
|Fundamental AIM IHT||15.40%||7.70%||21.60%||-10.80%||27.50%||9.90%||113.90%|
See five-year discrete performance comparison of all available AIM IHT portfolios
Source: 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 Fundamental Asset AIM IHT service at any time, subject to liquidity. Investors can also choose to fully liquidate the portfolio. In normal market conditions Fundamental aims to fulfil withdrawal requests within ten working days although this is not guaranteed. For withdrawal requests greater than £40,000 Fundamental 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. AIM shares can be very volatile especially if the market falls sharply. The difference between the buying and selling price of AIM-listed 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.
Due to the small team, there is considerable key person risk. Both Chris Boxall and Stephen Drabwell are 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||1%|
|Wealth Club initial saving||0.5%|
|Net initial charge through Wealth Club||0.5%|
|Annual management charge||Tiered
(1.5% on first £150k; 1% over £150k)
|Administration fees||£100 p.a.|
|Dealing fees||£50 per trade|
See example of the total charges over 5 years
Fundamental is a long-established boutique manager whose specialism is investing in AIM. To date the performance has been very good, although this is not a guide to the future. Charges are also competitive, especially for larger portfolios.
The core/satellite investment strategy appears well suited to the management of AIM IHT portfolios, in our view. The “core” element of the strategy sees the portfolio maintain a bias towards larger, more established and more liquid AIM-quoted companies, whilst the “satellite” element allows the investment team the freedom to allocate a small proportion of an investment portfolio towards smaller and more growth-oriented companies.
Something to bear in mind is that the team is small, so there is key person risk and it doesn’t have the resources of a large fund manager. However important functions such as the custodian of client assets have been outsourced to credible partners. In addition, the two fund managers and co-owners of the business Chris and Stephen are hugely committed and have a long track record of investing in AIM.
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
- £105.0 million
- Average market cap
- £785.0 million
- Initial charge
- Saving via Wealth Club
- Net initial charge