AIM Report 2019

42 43 ADVISER ROUNDTABLE VIEWS FROM THOSE CLOSEST TO INVESTORS What are the main changes you have noticed on AIM over the past two years? DN: It would appear marketing of this area is being pushed more into the mainstream, which causes some concerns, as it has been partly driven by the tapering of the annual allowance for pensions and the opportunity for VCT or EIS investment and the possible associated AIM exposure. Whilst this is an area we monitor, we do not see it as a direct replacement for mainstream investment: one of the mantras is to not let the tax tail wag the investment dog. But the marketing around this seems to have become more widespread with some managers directing the arena to a broader range of investors. I think we will see a continued increase in market awareness as the inheritance tax value of estates increases. NF: We have definitely seen a slowdown in performance over the past few years. I mainly use AIM for Business Relief, and I find a lot of focus is now on the mid-sized companies rather than the larger ones. This is to try and add value, because the larger companies are deemed overpriced. Two years ago, most of the providers we used were picking the same, larger companies. This pushes the prices up. Some fund managers are still maintaining focus on bigger companies, because that is their own strategic investment proposition, but the value isn’t there at the moment. For this reason, I remain cautious as an adviser when selecting an AIM fund manager. ATTENDEES “We will see a continued increase in market awareness” — DAVID NEALE, BECKFORD JAMES DAVID NEALE BECKFORD JAMES JON MARSHFIELD CHARTERED FINANCIAL MANAGEMENT PAUL JARVIS INTELLIGENT PARTNERSHIP Market research / Adviser roundtable Moderator: Paul Jarvis, Intelligent Partnership How have the recent rule changes around corporate governance impacted the market? JM: Tightening the corporate governance rules is a very good move and it will build more confidence in the detail you get from AIM companies, enhancing the potential to attract more investors. Things like the problems at Patisserie Valerie knocks confidence, so anything that can be done to improve confidence in AIM companies is a good thing. It is hard for any regulation to stop entirely what goes on inside a company: if someone wants to operate outside what is considered the acceptable remit, they will do that. So regulation helps to a certain extent but it will not get rid of this completely. DN: From an investor’s point of view it’s obviously a comfort to see this introduced as it does give more confidence, although as advisers we are relying on portfolio managers to do their due diligence. As we see a greater awareness of investment in the AIM market by clients, as well as an increase in marketing activity from portfolio managers, hopefully the governance changes reduce the risk of bad practice undermining client investment. NF: I have witnessed positive feedback and it looks like many companies have embraced these changes. It is important that the relationship between the shareholders and the company directors remains a good one and this seems to be helping to achieve that. What has the reaction been to the various macro economic impacts, from late-2018 volatility to the ongoing Brexit position? NF: The AIM market has slowed down. There is a lot of uncertainty at the moment, which is encouraging advisers and investors to look for greater diversification. AIM Business Relief portfolios tend to have exposure to 30-40 companies, but some other non-AIM IHT products can indirectly give exposure to 70 or 80 companies, for example where you might be investing in one company, but that firm’s business is providing loans to a wide range of other companies. So indirectly you are getting exposure to much greater diversity. Having utilised AIM for clients successfully in the past, currently, as advisers, I feel we are broadening our horizons and due diligence. JM: One of the reactions has been heavy share price discounting and tightening of liquidity. The spreads widen when there is uncertainty, and it becomes harder to determine what a fair value is. The uncertainty of Brexit is a nightmare for small businesses because they do not know where their markets are going and where business will be coming from. Whatever the outcome, it will provide certainty and then businesses will be able to plan effectively - it is the uncertainty of not knowing that is causing the problem at the moment. DN: The diversification in the performance across various sectors within the AIM market has really highlighted the associated risks. For example, notwithstanding the decimating effect of the diesel change legislation on the sector, the autos sector has been on a downward trend ever since the 2016 EU referendum result, currently standing around -75%. That is not reflective of how mainstream investments have performed, so issues such as Brexit have highlighted what we already know about the smaller company market: it is significantly more risky. It also shows the importance of using established AIM portfolio managers with a reputation for expertise in this field. It highlights that it is all very well marketing Business Relief investments in AIM as an opportunity to save on IHT, but if the portfolio is heavily invested in a sector that reacts to bad news, things can go south very quickly, curing the IHT issue in the wrong way. How do you select AIM fund managers to work with? JM: We make decisions based on the expertise of the manager, and in particular whether they have a specialist team. We wouldn’t usually use a generalist fund manager who has AIM within their portfolio, instead we look for an AIM specialist first and “Hopefully the governance changes reduce the risk of bad practice undermining client investment.” — DAVID NEALE, BECKFORD JAMES “A lot of focus is now on the mid-sized companies rather than the larger ones.” — NATASHA FATHERS, HAWSONS WEALTH MANAGEMENT NATASHA FATHERS HAWSONS WEALTH MANAGEMENT