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.
Aim – a strange hybrid
Optimists will see this as evidence that Aim has matured. The first 20 years included the dotcom and mining booms – with all the attendant manias and frauds – which made it an exceptionally bad time, so the last five years look good by comparison. Aim has still seen some blow-ups recently – most notably the failure of bakery chain Patisserie Valerie in 2018 – but nothing on a par with those days.
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Nonetheless, this market remains a strange beast. Many of the most popular Aim companies are not small growth stocks: some were once, but are now well established (online fashion retailer ASOS is an obvious example), while others are mature firms that list on Aim because they prefer its lighter regulation. These often trade at steep valuations because of their use in inheritance tax (IHT) planning (you don’t pay IHT on qualifying Aim stocks). Conversely, fewer good companies go to Aim for capital – they can get it via other means. So listings are a way for early investors and founders to exit or lesser firms to raise money.
Hence Aim remains a small number of good stocks amid a great deal of dross. There is no tracker fund for Aim (low liquidity and wide spreads would make it very hard to run one), or for smaller UK stocks generally (the iShares MSCI UK Small Cap ETF is in effect a FTSE 250 tracker). After 25 years, UK small caps remain a good hunting ground for stockpickers, but a missed opportunity for investors who want broad exposure to growth opportunities.
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