Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Justin Waine, investment director, Puma Aim IHT Portfolio Service.
The Alternative Investment Market (Aim) launched as London's home for emerging companies in June 1995 with ten stocks.Now, 20 years on, it is the home to more than 1,000 companies with a total market value of nearly £73bn. While Aim is traditionally seen as a place for small, early-stage companies,the truth is more complex. Over 300 Aim stocks have market capitalisations of more than £50m, while four are over £1bn.
The Puma Aim Inheritance Tax Portfolio Service seeks to mitigate inheritance tax (IHT) by using business property relief, which is available to many businesses on Aim. An investor who holds a portfolio of qualifying Aim stocks for two years receives 100% relief from IHT on those stocks at the time of death. This is particularly useful for those with individual savings accounts (Isa), who can continue to enjoy the tax and easy-access benefits of an Isa alongside the IHT mitigation of Aim.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The service also gives investors access to the growth of UK smaller companies througha concentrated portfolio of roughly 20 holdings. The target holding period is three to five years, keeping turnover low. I focus on three factors: quality, growth and valuation. For quality, I look for companies with a strong franchise, as demonstrated by good market position, brand strength and reputation. Companies should have high returns on capital employedand be converting their profits to cash.
I also look for companies that can grow over time I like those that re-invest the cash they generate to grow the business either organically or by acquisition. The final factor is valuation I buy companies at a discount to my estimate of fair value and I prefer companies with strong balance sheets that pay dividends.
FW Thorpe (Aim: TFW) manufactures commercial lighting systems. It is family controlled, with high profit margins, a post-tax return of capital employed well above its cost of capital, and a track record of turning profit into cash. The company has grown modestly in the last few years, but this masks a change in the business, with LED lighting growing from almost nothing five years ago to more than 50% of the business now. I expect the company to grow both organically and by acquisition.
It has a strongly net cash balance sheet, despite a recent acquisition. Taking into account this cash, it trades below fair value.Renew Holdings (Aim: RNWH) is a specialist construction and engineering services business. It provides these services to rapidly growing areas within UK infrastructure. It is involved in key areas, such as nuclear decommissioning, replacing water mains, and building flood defences. The company has strong returns on capital employed, and a track record of cash generation. Its balance sheet has only a modest amount of debt.
SafeStyle UK (Aim: SFE) is a retailer and manufacturer of PVCu windows and doors. It is the largest company (judged by installations) in the UK homeowner window and door replacement market. Safestyle was able to grow revenues throughout the recession by taking market share from its rivals. It has good earnings before interest and tax (EBIT) margins, very high returns on capital employed and a net cash balance sheet. I believe it will benefit from the recovery in the UK market and should also gradually be able to increase its market share, which is not currently priced into the shares.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Somero: trading this overlooked bargainFeatures Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
-
How to find big profits in small companiesCover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
-
The hidden gems on Aim, London's junior marketFeatures Aim, London’s junior market, is risky – but you can find solid stocks at low prices. Scott Longley reports.
-
Is Aim finally coming of age?Features The Aim market of mostly smaller companies has traditionally been seen as a bit of a backwater. Is it time to change that view? Matthew Partridge talks to Paul Latham and Richard Power of fund management company Octopus.
-
Three Aim-listed firms that will thrive in a post-Brexit worldOpinion Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick three Aim-listed firms that will survive Brexit turmoil.
-
Fetch! The Chinese small-cap stocks to buy in the Year of the Dog
Opinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
-
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
-
Get cheap, reliable growth from smaller companiesFeatures One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
