AIM Industry Report 2017/18

48 49 around. We have been delighted with how it has operated so far and are now busy promoting our AIM service to financial advisers across the UK. One of our biggest challenges is to raise the profile of Thorntons Investments within the wider Financial Adviser community, and establish ourselves as a leading provider in the AIM BR market. We have been working hard at this and will continue to do so. JG: The last 12 months have been pretty good to Psigma’s AIM IHT Service, both in terms of attracting new clients and in absolute and relative performance. I think the main challenge for us as a firm has been creating awareness of our BR product and continuing to build on its track record. Although my team and I have been managing BR portfolios both here and in my previous firm since 2006, we did have to start again when we arrived at Psigma in October 2013. We moved from AXA Framlington to be part of a private client house and that meant we lost the track record that we’d been building up since 2006. Understandably, most advisers seem to have fairly stringent criteria requiring at least a three-year track record and over the last few years, we’ve spent quite a lot of time meeting new and existing advisers in order to explain the service, the investment strategy, and how we differentiate ourselves. But, it does feel as though the hard work is starting to pay off. With that said it is a continuous process so I expect to have the same challenges next year as we have done since launch. JW: The last 12 months have been pretty good for our AIM business. We’ve had good, strong growth in assets under management, but we’ve also launched on three platforms: Standard Life, Ascentric and Transact. So, our model portfolio is now available to customers coming to us via the platforms and we’re expecting that to be a big driver of growth in the next couple of years. In terms of investment returns, we’ve delivered 13.84% in the period January to September so that’s pretty good. We’re happy with those returns and what makes us more happy is the fact that we’ve actually delivered good annual returns over the lifetime of the service. And another piece of good news for our AIM service is that we won the best AIM Investment Manager award at the Growth Investor Awards; the second year running we have won this award. AMS: As of today we only have AIM EIS funds but have been working hard on our IHT product which is ready for launch. Our AIM EIS service is unusual as it’s an authorised AIM EIS fund which means to say that our customers, investors, put money with us which we start to invest in April of every year and we have 12 months, effectively, to invest that money. Typically, we would make somewhere between 15 and 25 investments, I guess. So rather than all of the investors having to gather their own EIS3 certificates, they will simply get one EIS5 certificate from us which they’ll be able to use against their income tax. We believe it’s the only AIM EIS Fund in the market and we’re now raising subscriptions for our 5 th year of investment. The last 12 months have been beset, I guess, first of all by a little bit of inertia because of the Patient Capital Review, waiting for that, and in the first six months we found there was a decreasing number of new companies coming to the AIM market. I think that was partly due to a suspicion that the rules were going to change and that therefore it probably wasn’t sensible to raise money at that stage; and partly because it was quite difficult to get any advance assurance for new businesses. And I think that was due to lots of different things going on with HMRC. So, the challenge for us really was to find good investees, but in fact, that is always the challenge, but there was a decreasing number of new names to look at. But, I think the budget has clarified things and in many ways, it’s improved the situation from the point of view of AIM and EIS investing. There’s been a redefinition really of the government’s desire to bolster EIS insofar as it is investing in knowledge based investments, and that’s really a plus for AIM not a minus. We would expect more companies to be taking advantage of that. SB: We’ve seen record inflows into our IHT service over the last 12 months. And from an investment perspective, we’ve delivered what we think are pretty solid returns in what is an increasingly tricky market out there. The main challenges that we’ve seen over the last 12 months have been delayed impact of Brexit, especially on currencies and the UK consumer, and then one that is slightly more recent is the onset of MiFID II, which is technically 2018’s problem but already beginning to cause a few changes to the way people see the market. The biggest changes in the way we operate have been preparing for the latter. Looking at Brexit, on the positive side, we’ve seen some of the exporters doing a bit better. The worst hit has been UK domestic, especially those UK consumer stocks where Sterling’s weakness has seen input prices go up. And what’s really surprised me is actually the delay, the amount of time it’s taken for that to wash through the system. As we have seen hedges and forward purchasing agreements rolling off, we have experienced negative real wage inflation. So, it’s not been a great place for the consumer to be. That’s made it more difficult. You have seen the consumer exposed sectors perform poorly, but that’s where the value seems to be emerging in the market, so it’s a double-edged sword from our perspective. WHERE ARE YOU INVESTING ON AIM AND IN YOUR OPINION WHICH SECTORS AND COMPANIES ARE PARTICULARLY INTERESTING AND EXCITING AT THE MOMENT? SB: We’ve always run a well-spread, diversified set of portfolios where we diversify not just by company but also by sector that they’re exposed to and that’s probably held us back a bit because we still hold a reasonable number of UK consumer exposed stocks. Our investment style is much more long-term buy and hold. So, there’s been a bit of a headwind for us this year. But as I said, that’s where a lot of the value is emerging. If you look at something on a longer term view you say, actually I want to own this over the next 5-10 years. It’s just you have to be able to sit there and be comfortable enough that there is light at the end of the tunnel and the currency impact on the economy will neutralise and potentially reverse in your favour and you also have to think that at some point wage inflation is going to catch up with wider measures of inflation. We have seen some interesting companies. As ever, we take a balanced view on these things, so if you’re wearing a pessimistic hat, I think things like H&T, who are the UK’s largest pawnbrokers, or Begbies Traynor, which is an insolvency practitioner, will do very well if the UK consumer and UK corporates struggle. In terms of companies where we see latent growth I’d probably look at something like Dart Group, which runs Jet2, the airline, which having started a holidays business 10 years ago is now bigger than Thomas Cook in the UK. They carried over 2 million passengers on holiday this year. AMS: Our AIM EIS fund is sector agnostic, but the companies that have been, I think, most active and are quite interesting are those in the bio-pharma sector. And we’ve had some spectacularly good performing shares in the bio-pharma sector over the last few years. There’s been quite a lot of activity in the cyber security space in stocks. I would say that that’s been more exciting from the point of view of very interesting companies coming to the market, but actually the results are still quite early stage, to be honest, although it does look like a great market. There are also some interesting materials businesses which have come to the market, graphene being one of the areas which has been of interest. JW: We are obviously aware of what sectors our companies are in, so we don’t have too much exposure to any one sector, but we like to work bottom up. We’re looking really for quality companies which are growing and trading at sensible, or even better, cheap, valuations. Having said that, I think the area we’re finding the most interesting ideas is where companies are primarily focused on the UK. We’ve had all of the recent worries about the UK with Brexit, for example and as a result of that, a number of UK companies, or very UK-centric companies, on the AIM market, are now on single-digit earnings multiples, and we think that this offers a very interesting opportunity. Now, you’ve got to be relatively confident that the current slowness of the UK economy won’t continue forever, and we have a lot of faith in the UK economy. On the other hand, we are still finding some more export-orientated companies which show value, so a good example of something that we like a lot at the moment is a company called Focusrite, which is a manufacturer of electronic equipment and software for music broadcasting. It’s a great business – high returns, great cashflow, with an established overseas business with lots of room for growth. So, that’s the kind of stuff that we’re still finding out there. MS: We deliberately try and spread our investments in AIM companies, with the portfolio invested across LISA BEST ANDREW MARTIN SMITH SHARON PRIEST SAM BARTON MATT STRACHAN JUSTIN WAINE JON GOULD STEPHEN DANIELS “The onset of MiFID II is technically 2018’s problem but is already beginning to cause a few changes to the way people see the market.” — SAM BARTON, CLOSE BROTHERS ASSET MANAGEMENT “The challenge for us really was to find good investees, but in fact, that is always the challenge.” — ANDREW MARTIN SMITH, GUINNESS ASSET MANAGEMENT “The beauty of the small cap market is really the diversity of companies and business models you can find.”— JON GOULD, PSIGMA