AIM Report 2019

38 39 ? ARE ONLY HIGH NET WORTH AND SOPHISTICATED INVESTORS SUITABLE FOR AIM INVESTMENTS? WHAT ARE YOUR TOP THREE CONCERNS WHEN SELECTING AIM FUNDS OR SHARES? HOW HAS THE VOLATILITY SEEN AT THE END OF 2018 AFFECTED YOUR CONFIDENCE IN AIM? Unsurprisingly, investment risk remains at the forefront of most advisers’ minds when selecting AIM funds or shares, cited in their top three by 68% of respondents. This is an increase of 11 percentage points since our last survey and is perhaps in part a hangover from the volatility seen across the investment world in the final quarter of 2018. There has been a notable rise in concern over a lack of liquidity since our last report, with 54% of advisers including it among their top three concerns, making it the second most cited concern in the list. Again, recent developments in the wider investment sector may have had a bearing here, with the survey taking place during the period when the Woodford Equity Income fund had recently suspended trading. While this is not an AIM-focused fund, its troubles have clearly raised issues around liquidity across the investment landscape. The focus on performance among advisers is at the expense of compliance and due diligence, which has dropped down the list of priorities for advisers. This may suggest that the recent changes instigated by the London Stock Exchange Group to polish AIM’s reputation have had the desired effect. Meanwhile, one of the ‘other’ concerns cited was the threat that AIM stocks may be overvalued at present, making it potentially difficult to find value in the market. Anecdotally, this is a concern for some As inheritance tax continues to affect a growing segment of the population, it is perhaps no surprise to see that an increasing proportion of advisers believe AIM investments are suitable for all. While 40% still believe that AIM investments are only appropriate for HNW and sophisticated investors, 54% now believe a wider population can benefit from AIM - up from 51% in our last report. With the vast majority of advisers citing IHT planning as a key reason for recommending AIM investments, the fact that IHT is affecting more and more people, not just HNW individuals, suggests that the future will continue to see a steady increase in the proportion of advisers choosing AIM investments for a wider pool of clients. 40% 6% 54% NO RESPONSE YES NO 1 INVESTMENT RISK 68% 2 LACK OF LIQUIDITY 54% 3 COMPLIANCE AND DUE DILIGENCE 38% SUITABILITY 34% EXIT RISK 30% HMRC CHALLENGE 26% LACK OF TRANSPARENCY 24% NO TRACK RECORD 16% SECTOR REPUTATION 4% OTHER 2% advisers. Further up the market cap range, there are AIM companies with high price to earnings ratios and these could be the stocks that some of our respondents are referring to. However, many in the market believe that there are still good opportunities for value on AIM, not least due to the diversity on offer and the transparency that a quoted company must demonstrate. Furthermore, recent volatility, plus a move by some away from UK equities ahead of Brexit, has left a range of potential value opportunities. In a clear boost for the AIM market, the vast majority of respondents said the volatility in Q4 2018 had not impacted their confidence in the index. This perhaps demonstrates a recognition that the volatility was not simply an AIM issue, but one that affected stock markets around the world, big and small. Nonetheless, it should be noted that the volatility did negatively affect confidence for just over a quarter of advisers. This demonstrates the importance for AIM to show some resilience: the fact that it bounced back so well during the first half of 2019 should help to bring back some of that confidence. Even within this group, however, only a small proportion - 2% of all respondents - said that the volatility had significantly reduced their confidence in AIM. For all the uncertainty that Brexit has caused in the UK - and in particular feeding into the volatility in the financial markets - it seems to have had little impact on advisers’ views of the AIM market. Just 10% said the uncertainty that the ongoing Brexit discussions have caused has made it harder to recommend AIM investments. This is clearly good news for the companies quoted on AIM. Some advisers have told us that Brexit has become a factor that has to be taken into consideration in everything that they do, but it has not made one area of investment harder to recommend than another, as its impact will be felt right across the investing spectrum. Instead, many have caveated advice by simply highlighting the fact that the post-Brexit world is an uncertain one as long as withdrawal discussions go on. In some cases, advisers have told us that a small number of investors have chosen not to invest, awaiting the outcome of Brexit, but this is not AIM-specific. WHAT IMPACT HAS THE BREXIT UNCERTAINTY HAD ON YOUR VIEW OF AIM? SIGNIFICANTLY REDUCED SLIGHTLY REDUCED NO CHANGE HARDER TO RECOMMEND NO IMPACT 90% of advisers say that Brexit uncertainty has had no impact on their view of AIM 10% 90% 2% 26% 72% Market research / Adviser survey Market research / Adviser survey