AIM Industry Report 2017/18

71 70 Market Composition – Tax Efficient, AIM-based Offers The market has grown significantly in size over the past five years. At present, the total number of offers is more than triple that of 2012. In particular, the number of launches in 2016/17 alone equals almost a quarter of the total number of offers ever launched. Compared to the historical market composition by product type, the present market is primarily dominated by two types of product – BR and VCT. Overall, this year’s market composition has been slightly distorted because of the high market share of AIM VCTs. A majority of 2016/17’s new AIM offers have a growth & income strategy and an alternative investment fund structure. For now, we don’t know whether this trend will persist in the future, but we will follow this area with interest. From the preceding section we learned that most advisers recommend AIM shares for IHT planning purposes. Although AIM BR wasn’t the largest sector in this year’s market, we believe the current market offerings can still meet IHT planning needs as most BR offers are evergreen and advisers can pick a historical AIM offer to achieve IHT planning for their clients. Second, the market is fairly evenly distributed between growth and growth & income strategies, so advisers should be able to find an offer that meets their strategic need whatever their preference is. Furthermore, AIM-based investment products are not sector specific and our market research showed that most advisers acknowledge this and are sector agnostic when it comes to AIM investing. For advisers who do have a preferred sector and gain that exposure through AIM shares, they may manage this by choosing an offer that overweighs the preferred sector. Charges and Fees AMC is the most common type of charge quoted by AIMmanagers, followed by initial charge and dealing charges. An annual performance fee is quoted by some AIM VCTs, while the exit performance fee is most commonly found amongst AIM EIS offers. Unlike unquoted investment opportunities, where some charges are also levied on investee companies, AIMmanagers charge all the fees on investors. Despite the high market share of AIM VCTs, the average AMC decreased this year which, to a certain extent, indicates that the competitive environment has already forced managers to reduce the price. Lower charges were highlighted by our survey respondents as a development that they would like to see in themarket and our statistics show that the industry is moderately heading in that direction withmanagers dropping dealing charges and admin fees. Finally, fees quoted on AIMVCTs are typically much higher than AIMEIS and AIMBR services. Other Key Investment Metrics First, AIM-based investment offers generally target outperformance of the FTSE AIM index rather than stating an explicit target rate of return. Of course, the overall market can be less predictable than unquoted businesses, but it would seem likely that the sub-set of stable companies that BR managers in particular seek out on AIM are more than capable of out- performing the AIM index. AIM VCTs generally have a much lower minimum subscription level than the other two tax wrappers. The overall average minimum subscription declined significantly in 2016/17, meaning AIM- based tax efficient investments are becoming more attainable for retail investors, and using these tax wrappers for tax planning can also be practised on a small scale. Furthermore, the current raise statistics show that AIM investments have gained in popularity in recent years, and the investment providers in this space seem likely to keep increasing the amounts of money they raise over the next few years. However, we did note that there is a high degree of market concentration where a majority of the market share is dominated by some of the largest providers, measured by their assets under management in AIM. Generally, AIM VCTs invest in more investee companies than AIM BR solutions, and AIM EIS services only hold shares from a very small selection of companies. For target dividend, the three product types follow the same pattern. The average values for diversification and target dividend both increased this year, but we think this is primarily a reflection of the surge in AIM VCT offers. CONCLUSIONS WHAT THE INDUSTRY ANALYSIS REVEALS MANAGERS IN FOCUS DISCLAIMER Some of the managers have included some performance information in the following pages. As always, past performance is not a reliable indicator of future performance. This document is for professional advisers only, and it is not to be relied upon by retail investors. The value of an investment, and any income from it, can fall as well as rise, so investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status. The shares of the smaller companies could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell. These products are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. Neither Intelligent Partnership nor the managers offer investment or tax advice. We recommend investors seek professional advice before deciding to invest.