What kind of companies do AIM IHT portfolios invest in?
One in eight people will have inheritance tax (IHT) due either on their own or their partner’s death by 2032/33, it’s estimated. That could likely include the thousands of investors with significant amounts in ISAs.
Whilst free from UK income and capital gains tax whilst you live, ISAs could incur up to 40% IHT when passed on.
There is an exception. If an ISA is invested in AIM-quoted companies that qualify for Business Property Relief (BPR), it could benefit from IHT relief after two years, provided you still hold it on death and the shares remain qualifying.
These BPR-qualifying AIM companies are the ones AIM IHT ISA managers target, to create ready-made AIM IHT ISA portfolios for experienced investors comfortable with the risks of AIM and concerned about IHT.
What kind of companies are these? Here we look at three examples illustrating three distinct investment approaches – note this is not a recommendation to buy the shares mentioned.
The first focuses on larger and more established companies (sometimes dubbed the ‘blue chips’ of AIM). The second targets ‘unloved’ businesses with the potential to be turned around. The third seeks companies issuing new shares on AIM. Which of these approaches might appeal to you, and how might you invest in similar companies?
Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest. Tax rules change and benefits depend on circumstances. AIM shares are higher risk and more volatile than mainstream stocks and shares. AIM shares will qualify for 50% IHT relief from 6 April 2026.
Example of large and more established company
Tracsis plc
Tracsis plc is a comparatively large and established AIM company – of a kind favoured by managers like Octopus, Puma, Unicorn and Whitman.
A spinout from the University of Leeds, Tracsis launched in 2004 and has grown to become a leading provider of operational planning software, hardware and data analytics for the rail, traffic data and wider transport industries.
Virtually all UK train operating companies now use its products and services: from scheduling and rostering software (helping railways run more efficiently) to condition-monitoring hardware (identifying issues with rail infrastructure, to avoid costly failure).
In its latest trading update for the financial year to 31 July 2024, the business reported expected group revenues of over £81.0 million, with adjusted EBITDA of c.£13.0 million. Management believes the business has a robust cash position and healthy levels of cash generation so it can continue to invest in its technology and pursue organic growth supplemented with targeted acquisitions. Tracsis has a current market capitalisation of around £190 million (September 2024).
Tracsis is a holding in the Puma, Unicorn (Growth) and Whitman AIM IHT portfolios, as well as the Downing portfolio. It is an example of a more established company the managers believe still has potential for growth.
Example of “unloved” company with turnaround potential
Volex plc
Volex plc is the sort of business favoured by a manager like Downing: underperforming and undervalued – but with the potential to be turned around, in Downing’s view.
Incorporated in 1919, Volex was a heritage British supplier of power cords and cable assemblies (for electronics and appliances) to a dwindling number of blue-chip customers. Its product range was overexposed to a declining PC market and cheap mass production from China. Staff turnover was high and management weak.
Years of chronic underperformance had seen the company’s share price fall dramatically.
In 2015, Nat Rothschild bought a 25% stake in Volex and introduced several changes: cutting loss-making contracts, rationalising costs, seeking new markets, and absorbing smaller cable assembly businesses.
The Downing AIM Estate Planning Service invested during a fundraising in 2018. In the three years that followed, Volex increased its operating profit by 250%.
Since then, the company has strengthened its position further. In its latest results for the 2024 financial year, it reported revenue of $912.8 million (doubled since 2021) and underlying operating profit of $89.7 million.
Volex is currently the largest holding within the Downing AIM Estate Planning Service portfolio.
Example of new share issue investment
Elixirr International plc
Another investment approach an AIM portfolio manager may take is to find opportunities in IPOs and new share issues: new shares are typically issued at a discount of 2–10% to the current market price to attract investors. This types of opportunities are favoured by a manager like RC Brown.
Founded in 2009, Elixirr International is a challenger management consultancy. It offers a bespoke, collaborative style that has drawn an impressive roster of global clients – including Bloomberg, HSBC, Burger King, Diageo, Tesla and luxury fashion house LVMH.
In July 2020, the company was admitted to AIM, raising £20 million. Since then, it has completed several acquisitions and grown considerably – which has been reflected in the share price. In its latest announcement, the Elixirr group reported revenue of £53 million for the first half of 2024 and adjusted EBITDA of £15.1 million (up 28% and 23% respectively on the same period the previous year).
Which approach to choose?
Some investors may feel an affinity with a particular approach and prefer it over another. You could decide which to choose yourself – or seek professional advice if unsure.
Another option is to spread the investment across several portfolios with complementary strategies. The AIM market tends to be volatile – the last couple of years are an example. Having exposure to a range of investment styles could help mitigate the impact of periods where one falls out of favour.
For example, Downing’s strategy focuses on stocks it believes are undervalued but with the potential to recover. This style of investing was out of favour for a long while but has seen a resurgence over the last few years as growth stocks buckled under higher interest rates.
How have investor portfolios performed?
Performance will of course vary depending on the timing of the investment and the portfolio constituents.
Below we show five-year cumulative performance of each AIM IHT portfolio available through Wealth Club. As ever, past performance is not a guide to the future. Individual investors' portfolio performance might be different.
Performance of AIM IHT ISA 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 which shows the performance of one example portfolio. Past performance is not a guide to the future. Dividends are variable and not guaranteed.
See five-year discrete performance comparison of all available AIM IHT portfolios
| AIM IHT portfolio | YTD | 2023 | 2022 | 2021 | 2020 | 2019 | Five years to 30 Jun 2024 |
|---|---|---|---|---|---|---|---|
| Downing AIM IHT | 7.2% | 6.5% | -10.2% | 26.7% | -3.4% | 16.6% | 36.2% |
| Octopus AIM IHT | 1.2% | -7.1% | -32.2% | 18.4% | 0.5% | 21.8% | -19.9% |
| Puma AIM IHT | 3.6% | 5.7% | -14.2% | 28.4% | 2.8% | 24.2% | 40.0% |
| RC Brown AIM IHT | 10.2% | -8.2% | -37.9% | 9.5% | 17.5% | 23.2% | -10.9% |
| Unicorn Dividend Focus AIM IHT | 2.5% | -1.2% | -17.7% | 13.1% | -5.8% | 21.4% | -5.3% |
| Unicorn Growth Focus AIM IHT | 1.1% | -3.9% | -25.7% | 4.6% | 7.2% | 34.0% | -8.1% |
| Whitman AIM IHT Portfolio | 1.0% | 1.1% | -29.1% | 23.6% | 9.2% | 30.7% | 16.4% |
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
Alex Davies
Chief Executive
Alex was a board director at Hargreaves Lansdown, where he worked for 15 years. He was responsible for building Hargreaves Lansdown into the biggest direct-to-consumer SIPP provider in the UK with more than 150,000 clients and over £12 billion under management. He is a keen investor with a portfolio of shares, funds, student property, EIS and VCT investments.