AIM Report 2019

Market update / Portfolio performance 18 19 Sector performance It is important to remember that the overall index figures don’t always tell the whole story. While the volatility affected all global markets in Q4 2018, some sectors within AIM still managed to outperform the rest of the market. For example, the Financial Services sector saw a drop of 6.27% during the quarter, while Real Estate & Construction saw a fall of 9.26%. When compared with the overall drop in the AIM market of over 20%, these sectors clearly proved to be more successful than the average during the period. Small business confidence With new issues in 2019 lagging behind previous years, it seems that there remains some uncertainty among companies listed on AIM. While this may in part be a hangover from the volatility of late 2018, it seems likely that wider macroeconomic issues are at play. At an international level, the pound has continued to struggle against the dollar over 2019. Having had a rally in early 2018, hitting a high of 1.4 against the dollar in April that year, sterling has fallen back and by June 2019 was trading around the 1.2 mark. AIM SECTOR PERFORMANCE AIM All-Share 0 -5 -10 -15 -20 -25 FTS All-Share Financial Services Real estate & construction Professional services SOURCE: LONDON STOCK EXCHANGE SOURCE: MACROTRENDS POUND VS DOLLAR EXHANGE RATE 1.2000 1.2500 1.3000 1.3500 1.4000 1.4500 1.5000 1.5500 1.6000 1.6500 1.7000 1.7500 2015 2016 2017 2018 2019 5 KEY POSITIVES + BR, VCT and EIS require a longer term hold that fits well with AIM + There are opportunities for value + Volatility doesn’t write off a company + AIM offers good diversification, including non-UK exposure + Manager skill offers the chance to outperform the overall market This appears to be linked, yet again, to Brexit. As the Conservative Party began its leadership process to replace Prime Minister Theresa May, comments by frontrunner Boris Johnson that indicated he would be willing to leave the European Union without a deal had hit sentiment and left investors wary. Johnson went on to win the contest, becoming the UK prime minister, but also sought to temper his rhetoric by insisting he was not aiming for a ‘no deal’ scenario. Against this backdrop, market sentiment among small businesses has also struggled. The Federation of Small Businesses (FSB) quarterly survey of members reported in June 2019 that seven in ten small firms did not expect their performance to improve over the following three months, while four in ten expected it to worsen. The FSB’s confidence measure reached -8.8 in Q2 2019, down 22 points compared to the same period in 2018, marking the fourth consecutive negative reading. It is the longest period of negative readings since the measure was launched in 2010. In such a negative environment for SMEs, it is perhaps unsurprising that by July 2019, there had been only 16 new issues since the start of the year, compared to 42 in the same period in 2018. Having said that, AIM has been maturing well and it is important to remember that some larger companies also have a presence on the market today – it is no longer only for the smaller companies. There were just 42 IPOs on AIM last year, compared to a high of 387 in 2005. However, according to the Financial Times, this “underscores AIM’s increasing maturity”, explaining that in 2018 three-quarters of AIM’s constituents (by value) were profitable and dividend payers represented nearly two-thirds of AIM companies. That compares with slightly more than half and a third respectively in 2008. “AIM is no longer dominated by unseasoned debutantes with promise.” 19 This is underlined by the fact that a number of the larger companies on the market, such as ASOS and Fever-Tree, have decided to remain AIM-quoted companies, rather than making the jump to the main market. The upshot of all this is that investors looking at AIM are presented with a wide variety of interesting options. ”More mature, more stable businesses are coming to the AIM market, which will allow them to raise expansion capital from firms like us to go out and expand.” — NIGEL ASHFIELD, MANAGING DIRECTOR AND PARTNER, TIME INVESTMENTS Market Update / Portfolio performance