AIM Industry Report 2017/18

8 9 TAX KEY FINDINGS HIGHLIGHTS FROM OUR RESEARCH ISA AND VCT WRAPPERS OFFERS that mitigate dividend tax mean AIM opportunities NOT JUST IN GROWTH EXECUTIVE SUMMARY WHAT YOU NEED TO KNOW This report was designed to examine investment opportunities via the Alternative Investment Market and address common misconceptions, which often stop advisers from recommending them despite their benefits. We begin our analysis by presenting our readers with an overall picture of AIM and in the subsequent sections we help advisers understand how to make the most out of AIM investments, as well as covering regulatory considerations such as suitability and due diligence. Finally, we share the findings of our market research and provide an analysis of existing AIM- based investment services and their key investment metrics. AIM OUTPERFORMS MAIN MARKET 2017 has been a strong year for AIM, with the AIM All-Share index passing 1,000 in August 2017 for the first time in nine years. The market value has jumped up significantly, although cancellations continue, which is not ideal on a market which is already substantially smaller than the main markets, even if many are the result of transfers to the main market and reverse takeovers. That said, the volatility for which, rightly or wrongly, the AIM index is famous, has often been lower than comparable main markets. So, Brexit and hung parliament related fears appear not to have caused any major setbacks for AIM. POTENTIAL REGULATORY CHANGES A recent survey of SMEs found that regulatory change rates as number four in the top barriers to growth for small businesses. MiFID II and possible AIM-specific changes are in the offing, with the LSE proposing to tighten the regulations for companies wishing to be quoted and the potential for stricter reporting requirements. Nevertheless, AIM investment providers in tax efficient space and other commentators seem largely happy with this, provided the potential new requirements don’t act to exclude the potential high growth firms. NEWLY QUOTED COMPANIES LEAD FUNDRAISING CHARGE Newly quoted AIM firms had already surpassed the 2016 full year total by Q3 2017. This reflects an active market of new participants in which smaller firms are not being put off by political and economic uncertainty. It may also be an indicator of the continuing strength of investors’ growth appetites and a context within which smaller, more nimble companies may be well-placed to react to fast changing conditions. BR IS BIG ON AIM In September 2017, AIM BR services dominated the tax efficient investments that are AIM focused, comprising 87.1% of the open offers and over 9 out of 10 advisers who recommend AIM frequently do so for IHT purposes. Some research also estimates that up to a third of all the money invested in AIM is from IHT planning services. Bearing in mind the capital preservation goal of many IHT services, this may seem surprising. But long-term growth does appear to be an appealing objective, even if AIM-based BR funds may not be suitable to highly risk-averse individuals. Instead, AIM shares may be more appealing to those who are more experienced in investing and understand the realities of AIM. NOT JUST A GROWTH MARKET Despite the main focus of AIM firms being generally on growth, contrary to popular belief, there is a wide choice of companies on AIM that provide good income. And the availability of tax wrappers like ISAs and VCTs which allow tax-free dividends can make for efficient investment where the right companies are selected. FAMILIARITY BREEDS CONFIDENCE Our research suggests that, as they write more business in this area and become more aware of the regulatory requirements, advisers realise that these issues are not as complex as they thought. With experience, there are also fewer concerns about suitability, due diligence and compliance. Understandably, then, those with more experience of AIM investing don’t necessarily stick to their familiar providers to find the best opportunities and a high proportion assert that it is not just for high net worth individuals and sophisticated investors. GOVERNMENT 2017 AUTUMN BUDGET FOCUS ON HIGH GROWTH SMEs ALIGNS WITH AIM The 2017 Autumn budget saw the Government make a huge commitment to SMEs and scale- ups with £20 billion of investment into the sector. The objective is to support fast-growing, successful UK businesses, something that AIM does by providing a platform for firms with high growth potential. Marcus Stuttard, head of AIM, acknowledged the connection, stating, “We look forward to continuing to work with the Government to support innovative, high growth potential companies as they develop into the global job providers of tomorrow.” AIM OUTPERFORMS MAIN MARKET October 2017 1 Yr 3 Yr FTSE AIM All-Share 28.1% 14.6% FTSE All-Share 13.4% 9.4% NUMBER OF AIM IPO S UP AFTER ELECTION € 57% total equity capital raised across EURO GROWTH MARKETS in H1 2017 was ON AIM MARKETS AIM FIRMS BENEFIT FROM Q1, Q2, Q3 2017 BOOSTS in export-led growth 8 AIM STOCKS NOW WORTH £1 BILLION or more ALMOST 9 IN 10 TAX EFFICIENT AIM offers are BR BR BR BR BR BR BR BR BR BR 59% OF SMALL FIRMS EXPECT INVESTMENT to hold steady over coming year 2018 AIM MARKET value up by 25% to Q3 2017 82% of regular AIM advisers say IT’S NOT JUST FOR HNWs 40 AIM-QUOTED COMPANIES part of FRC reporting assessment 30% OF LARGER SMEs HAVE RAISED EQUITY FINANCE