Why Aim stocks are for stockpickers

Aim, the UK’s market for growth stocks, has had a respectable five years, but returns are driven by a few winners.

When Aim reached its 20th anniversary in 2015, most investors were not reaching for the Champagne. Nearly three quarters of firms listed on the London Stock Exchange’s market for growth companies had lost money for shareholders, according to research at the time by Elroy Dimson and Paul Marsh of London Business School. Almost one in three firms lost 95% or more of their initial value. Overall, the FTSE Aim All-Share index was down by around 20% since inception, at a time when the FTSE 100 had almost doubled.

The subsequent five years have been better. The FTSE Aim All-Share has returned 21% (including dividends), while the FTSE 100 has returned 6.4%. It’s true that success has been unequal: only about 30% of firms have seen their shares rise, while 50% are showing losses (the rest haven’t been listed for the full five years). Just 10% are up by as much as the 21% average for the index (I’m ignoring dividends, but it won’t make much difference). Still, you expect returns to be skewed towards a few winners when investing in growth stocks, so that’s not a big problem.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.