AIM Report 2019

6 7 EXECUTIVE SUMMARY KEY FINDINGS WHAT’S IT ALL ABOUT? HIGHLIGHTS FROM OUR RESEARCH Economic and political uncertainty have continued to depress market sentiment in the UK over 2019 and this has fed into the investment climate. However, after a turbulent finish to 2018, when global markets saw billions wiped off their indices, 2019 has seen something of a recovery. Nowhere has this been more clear than on the Alternative Investment Market (AIM), which rebounded strongly, particularly in March and April 2019. Average diversification is up to 75 COMPANIES for AIM based tax efficient products £12.8bn INCREASE in total market capitalisation COMPARED TO 2018 72% OF ADVISERS said their confidence in AIM WAS NOT AFFECTED by the Q4 2018 volatility 77% OF COMPANIES ON AIM have a capitalisation of less than £100m 98% OF ADVISERS expect their use of AIM funds or shares to increase or remain the same in the next 2 YEARS 9.35% AVERAGE TARGET returns for open offers, way above the 1.5% for historical offers Key themes that this report focuses on include: CHANGES TO AIM’S REGULATORY ENVIRONMENT From 2017 onwards, a number of important changes have been made to the rules governing AIM-quoted companies, as the London Stock Exchange (LSE) moved to shore up the market’s reputation. Changes tightening the rules around firms’ corporate governance have been designed to ensure that those companies coming onto AIM have transparent and consistent processes that can be easily recognised and understood by potential investors. CURRENT MARKET CONDITIONS While the global financial markets all suffered at the end of 2018, there were a number of factors specific to AIM which hit the market hard. Concerns were particularly raised over the future of Business Relief investments within AIM, with the Office of Tax Simplification (OTS) confirming that it intended to look at this area in its inheritance tax review. Although the OTS’s second report in July 2019 suggested consideration needs to be given to BR’s role in AIM shares, it recognised BR’s other important role of supporting growth investment in AIM. Wider factors also contributed to AIM’s struggles, including concerns over Brexit and the US-China trade war. However, despite these converging problems, the market remained relatively resilient, bouncing back to enjoy a strong first half of 2019. MARKET COMPOSITION AIM is made up of a diverse range of companies and even when grouped into relatively broad categories, no single sector dominates the market. This offers good opportunities for diversification for investors. However, the number of companies quoted on AIM continues to recede, having fallen every year since 2007, and is now nearly half of what it was in that year. So careful consideration of diversification strategies is required. Various underlying investment sectors will perform differently to the overall market: during the volatility of Q4 2018, sectors such as Financial Services and Real Estate & Construction saw falls that were far less severe than the AIM market as a whole. SLOWDOWN IN TAX EFFICIENT OFFERS After rapid expansion between 2013 and 2017, the number of tax efficient offers in the AIM market from 2018 has slowed significantly. While this may have been partly to do with the increased risk to capital requirements for VCT and EIS products, the fact that some VCT offers have successfully launched since those rules were introduced demonstrates that AIM can still be successful in this area. Business Relief’s presence in the AIM market remains strong. THE AVERAGE TARGET FUNDRAISE of new offers is £19.25m 22 fewer companies listed on AIM than in 2018 AIM LOST 20% of its value IN Q4 2018 12 12 AIM VCT PRODUCTS have been launched since NOVEMBER 2016 33 open tax efficient offers at JUNE 2019 TRACK RECORD is a key consideration, cited by 98% OF ADVISERS when considering AIM investments