AIM Report 2019

44 45 foremost. Then we look at what assets they have and what special features they may offer. DN: Our starting point is using a research platform such as MICAP, which we use to identify open opportunities. We generally shortlist the initial opportunities according to a range of criteria specific to the individual client case including initial investment levels, intended level of portfolio diversification as well as portfolio fee structures. Where possible, we would look to diversify across more than one manager to help mitigate risk. We tend to start with managers with known experience as we rely on their due diligence at individual company level not only to ensure qualifying companies but also to identify sound investment opportunities. NF: Primarily, it’s through looking at their knowledge of the market and their investment process. I like to see a strong investment committee with a good track record. Fund managers should be fully aware of what they are buying and why. I am a firm believer that AIM is a ‘stock picker’s’ market, so it needs that hands-on approach. We always look at the costs involved. Many investment proposals will have a lot of commonalities and it is important to drill down whether those with higher fees are able to justify them and if so, how. When I get proposals from fund managers, I will always study this in depth and research the companies being invested in. What is AIM most useful for, for example, Business Relief, the Enterprise Investment Scheme, Venture Capital Trusts or other forms of investment? NF: It is mainly for Business Relief. The two main reasons I look to AIM are for BR where clients have an aggressive attitude to risk or where the client is likely to need access plus the IHT relief in the near future (i.e. after 2 years). DN: In this case, and appreciating that AIM isn’t the only remit of BR, EIS and VCT investing, potential longer-term investment return coupled with inheritance tax efficiency go hand-in-hand. If reliefs were withdrawn, we would still want a client to be holding something beneficial. However, where we do look towards such portfolios, it is most likely to be for the inheritance tax efficiency because of the growing value of estates, but it needs to suit the investment risk appetite of the client. We do look at AIM focused VCT products for income tax relief as part of a tax-free income source to complement retirement planning, again where suitable. That is for a small proportion of investors and AIM is really for sophisticated investors with a high capacity for loss on the amount allocated. JM: For us, 99 times out of 100 it will be a BR product, and occasionally a VCT product. AIM is better for liquidity, so it suits BR, and mostly we use BR ISA products with AIM. We will only tend to use AIM for VCT investments when non-AIM VCTs have reached capacity. That’s because if people are going to take the level of risk involved in a VCT, we think it may as well be for something more aggressive than in a pooled investment that an AIM VCT offers. Also, if you invest directly, rather than through an AIM VCT product, there is a good chance that the VCT will have a manager on the board of the company that you are investing in. What are your hopes and concerns for the market over the next year and how could the AIM market be improved? JM: Our big hope is for reduced volatility in the market. We would also like to see a narrowing of spreads: some are very wide, which can create expensive trading conditions. I would also hope that the share price discounts narrow compared to the value. On the flip side, our concerns will obviously be that there is greater volatility, and that liquidity might become an issue. Perhaps the biggest concern, though, would be if there are a couple of high profile failures, because of the impact that would have on the public perception of AIM. It’s not the smaller companies, because you expect a certain amount of failure among these, but if some of the bigger companies on AIM were to collapse, then the negative sentiment that would create would be bad for the market. DN: I hope the market in general will demonstrate resilience against import/export type concerns and the Brexit backlash in the first instance, though we’ve seen how certain sectors have suffered. Aside from the general economic influences, an historical concern is seen in how readily an AIM company’s share price can be artificially hyped by noise around it, and how bulletin boards can drive a company’s AIM share price incredibly quickly both up and down. This doesn’t necessarily support investor confidence or help the underlying company. Obviously, this can happen on the main market but there is likely to be greater liquidity there than in company stocks at the very small end of the market as highlighted by the recent Woodford turmoil. Hopefully the corporate governance changes will increase confidence and reduce the risk of high-profile failures or scandals. Increased regulation will push up costs, which may lead to companies opting not to list and potentially removing good opportunities for investors as well as fund raising for companies. NF: My concerns are around the uncertainty in the UK. As a result, investors may naturally migrate to what they perceive to be lower risk, safer investments, such as fixed interest, commodities and cash. Meaning the smaller companies are forgotten. Having said that, in my experience, AIM is now spoken about more widely than ever before. We have had clients successfully utilise Business Relief. It is useful to have real-life examples of its success when advising future clients. The change in focus from the fund managers to the smaller/middle sized companies is positive as these will benefit from new investment. We are now seeing new companies being picked and that is exciting. It is always nice when investors can say they directly participated in the success of a company. Market research / Adviser roundtable Market research / Adviser roundtable Moderator: Paul Jarvis, Intelligent Partnership “I am a firm believer that AIM is a ‘stock picker’s’ market” — NATASHA FATHERS, HAWSONS WEALTH MANAGEMENT “Our big hope is for reduced volatility in the market” — JON MARSHFIELD, CHARTERED FINANCIAL MANAGEMENT “AIM is better for liquidity, so it suits BR” — JON MARSHFIELD, CHARTERED FINANCIAL MANAGEMENT