AIM Report 2019

75 74 SWOT ANALYSIS OVERVIEW OF AIM STRENGTHS WEAKNESSES OPPORTUNITIES THREATS Regulatory changes introduced by LSE, as well as those through the Markets in Financial Instruments II Directive (MiFID II), are creating greater credibility and transparency in the market, especially when compared with the relative opacity of unquoted stocks. Volatility seen in Q4 2018 cannot be ruled out in the future and those not looking at these investments over the long term will be particularly exposed to potential fluctuations. Recent Brexit concerns and volatility have affected a wide range of UK equities, leaving some companies on AIM with strong statistics and prospects undervalued. Brexit remains an unknown quantity that could sharply affect both investor confidence and the willingness of smaller companies to grow and expand their businesses. Liquidity remains strong with a healthy trading of secondary shares that cannot be found in other unquoted stocks. Potential exists for contagion to hit stocks quoted on AIM as a result of concerns over those listed on the main FTSE exchange, as seen in the wake of the problems at Neil Woodford’s Equity Income Fund. Tax efficient investments, particularly BR, have outperformed the general AIM market over recent years. Some companies further up the index have high price to earnings ratios used for their valuations, which could signal over-valuation. Increased diversification within the tax efficient products that are available on the market should insulate investors to volatility to some extent. Although there is a wide range of sectors represented by companies on AIM, the number of firms now quoted is continuing to reduce, meaning the scope for investors is becoming more limited. AIM-quoted EIS and VCT investments can still qualify for the tax reliefs even after the tightening of the rules around the risk to capital in such schemes. Continued negative sentiment within the small business community could affect the number of companies looking to grow on AIM and the number of IPOs could continue to dwindle. The conclusion of the OTS review into inheritance tax underlined the government’s commitment to AIM as an important supporter of small British businesses. There is still some uncertainty among advisers over whether AIM investments can meet the new risk to capital requirements for EIS and VCT products, despite some VCT offers having been successfully launched since the rule changes came into force. As inheritance tax take continues to rise, a larger pool of investors are seeking tax efficient homes for their money. As more mature companies remain on or switch to AIM, questions may be raised over its ‘unlisted’ status for the purpose of tax efficient investments. 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