Is now a good time to invest in AIM?
We met with several AIM Inheritance Tax ISA investment managers over video call in November and December and asked: Is now a good time to invest in AIM?
You may be surprised how varied the answers are – covering a breadth of considerations. They range from opinions on where investors could look in AIM, the long view, the shake-up from Covid-19, a glance retrospectively, a comparison of AIM to the main market’s performance – and, of course, the outlook.
You can watch the video and read a summary of what they told us below. The interviews are not in any particular order in the video, but in this article we have shown featured investments first and then ordered the firms alphabetically.
Comments from Richard Power, who manages the Octopus AIM Inheritance Tax service
“Yes, we think now is an interesting time in the market to be deploying funds. There’s been a lot of disruption this year because of the Covid-19 crisis, which means that valuations have got a bit inefficient recently, and that always presents opportunities for small-cap fund managers. So we’re excited about the next 12—18 months in the market or so.
“AIM has matured incredibly over the last decade as well – when we first launched our inheritance tax service there were probably only about 100 companies that were dividend paying, profitable, progressive growth businesses. And that pool of businesses has grown to probably 400–500 now. So there's a much wider selection of exciting investment opportunities to choose from than perhaps there were five or ten years ago.
“When it comes to timing, people need to remember this is a long-term investment – we’re investing with a three-, five-, often ten-year time horizon, and so people need to perhaps relax a little bit about the exact entry point, but realise you're getting a portfolio of progressive growing companies that we hope will be significantly larger businesses in the next five or ten years. So it's really about just getting that journey started.”
Comments from Neil Blankstone, who manages the Blankstone Sington AIM Inheritance Tax Service
“In a lot of ways it is a really good time to invest in AIM. We’ve had a market correction, obviously, through a very difficult period – I think we were overdue, and as a result there’s been a lot of repositioning. But when you do look at it now, there’s better value around. Companies are starting to exceed what were much-reduced expectations, which is good.
“What are the risks from here? They’re a little bit unknown. One is weak management – the inability to adapt to what is very much a new environment. No one quite knows how Covid-19 is going to pan out exactly – obviously a vaccine is good news, but we’ve still got some way to go. And then of course at the end of this year we fall out of Europe. So it is a little bit ‘buyer beware’, and be very selective, but in general terms we’d say there’s good value around.”
Comments from Judith MacKenzie, who manages the Downing AIM Estate Planning Service
“If you look at the AIM index over its life, which is about 20 years, then it has not been the best index to invest in as a whole. But what we find is, if you’re a stock picker and you’re prepared to get under the bonnet of some of these companies, that it’s a fantastic hunting ground. So I believe at the moment, especially in these Covid-19 times, there are companies that have been overlooked, and therefore a really good time for investing.”
Comments from Chris Boxall, who manages the Fundamental AIM ISA
“AIM as a market looks in good shape and it’s never been healthier. There are a lot of good businesses, growing strongly, and that’s been the key attraction of AIM – growth over the main market – and why it’s been outperforming the main market over a number of years. However, a lot of the bigger growth companies are now priced to perfection. It means their valuations are high and look stretched.
“Selection is becoming trickier – it has become harder to decide whether to stick with growth companies that have performed well, or to look lower down AIM into the smaller companies who perhaps have better valuation attractions. The risk here is that some of these seemingly modestly valued businesses are going to stay modestly valued because their growth is constrained. These are so-called value traps – stocks that look inherently good value, but remain good value and the share prices languish.
“We’re encouraged by some of the recent newcomers to AIM, where valuations are a bit more modest – they’re untested on AIM, but they’re still well established businesses, and some of them look quite compelling.”
Comments from Justin Waine, who manages the Puma AIM IHT Service
“I think there’s three good reasons for long-term investments in AIM. The first is that the AIM market is home to a number of interesting growth companies – not just exciting high-growth ones such as ASOS and Boohoo, but solid, sensible cash-generative businesses that will continue to grow over the next five to ten years.
“The second reason is family businesses. Some really interesting companies have moved to AIM for Business Relief and are good quality family businesses that have been around for decades, that are delivering good long-term growth, they’re delivering good cash flows, and they’re the kind of solid businesses that investors should own.
“The third reason is that, in addition to delivering investment returns by investing in AIM, you can benefit from inheritance tax mitigation as long as the stocks that you acquire qualify for Business Relief (BPR).”
Comments from Oliver Brown, who manages the R C Brown AIM ISA
“AIM has come out of the pandemic relatively well, it’s actually up on the year and has greatly outperformed larger UK markets. AIM is home to smaller, more agile companies that actually in this crisis have proven their ability to adapt to lockdown. The index has got good exposure to technology and growing healthcare companies and they have proved strong this year, and we actually expect that to continue going forward as well.
“We expect to see strong economic growth in 2021, and because AIM is home to typically smaller growing companies then we believe it is a good place to be going forward.”
Comments from Stephen English, who manages the Stellar AIM ISA
“It is a good time for certain pockets of AIM, particularly £200 million market cap and below. The top decile is trading now on a price-to-earnings ratio of [approximately] 40 times earnings. You’ve got to be even more selective than normal. And if you go down the market cap spectrum – £200 million, or even £50 million – you can be picking up companies on 20 times earnings or less. And we feel that the growth prospects for these companies are much stronger than the current AIM darlings. We’re looking for tomorrow’s winners, not yesterday’s.”
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.
Compare AIM IHT ISAs
Read our reviews of the different AIM ISA Inheritance Tax portfolios availableLearn more