BR Report 2019

28 29 FIVE KEY POSITIVES AIM BR INVESTMENT Finally, remember, the transparency of AIM makes it easier to view performance and valuation figures. So it’s not unfair to assume that some private company BR investments are experiencing some negative impacts from geo-political uncertainty. For example, Oxford Capital recently withdrew and then closed its BR focused estate planning service as a result of issues with valuations of its non-AIM BR companies. 2. OPPORTUNITIES FOR VALUE: Fundhouse managing director Rory Maguire when asked about opportunities from Brexit said, “There could be many, but it seems likely that asset classes linked to the UK economy could sell off in an overly emotional way. Examples could be UK smaller company equities, higher-yield sterling debt and property, for example. There could be buying opportunities in these asset classes if the market overreacts in the short term 15 .” And in March 2019, the Association of Investment Companies (AIC) stated that UK equities are trading at a 30% valuation discount to global peers - close to a 30 year low 16 . BR managers are well-placed to take advantage. 3. VOLATILITY DOESN’T WRITE OFF A COMPANY: Just because a share price has been volatile it doesn’t necessarily mean the underlying company is not sound - e.g cash generative and able to continue trading towards better market conditions. Many AIM quoted BR-qualifying companies are large and well-established with robust operating structures in place. Take the example of Watkin Jones PLC, a BR qualifying AIM quoted company. Established in 1791, in the last twenty years it has become a key player and leader in UK purpose- built student accommodation, having delivered over 38,000 student beds at over 117 sites to date. On 3 December 2018 its shares were trading at £2.10 each. Within less than a week its shares had lost almost 10% of their value at £1.92. But by 3 January 2019, they were back up to £2.09 17 . 4. AIM OFFERS GREAT DIVERSIFICATION, INCLUDING NON-UK EXPOSURE: The range of activities undertaken by AIM quoted companies is very broad. It has been criticised for being UK-centric but, while the stocks may be quoted in the UK, around half of revenues generated by AIM companies are from overseas. This is slightly higher than the FTSE 250. AIM quoted premium mixer company Fever- Tree, for example, generated c.50% of its revenues from overseas last year and this is expected to expand as the group builds out its operations in the US 18 . Because of the increasingly global nature of AIM, some investment managers are confident that Brexit’s effect on the overall market will be limited. 5. DON’T FORGET THE TAX RELIEF AND MANAGER CAPABILITIES: Overall market figures don’t take into account manager skill, or factor in tax relief to the return. That said, investors who are interested in investing in AIM for IHT mitigation, must be happy with the level of volatility and risk that is present. 1. BR USUALLY EQUATES TO A LONGER TERM HOLD: Investors need to be holding BR-qualifying shares at death in order to benefit from the relief. So, while two years is the minimum holding period to qualify, the reality is that it’s likely to be a much longer investment horizon. For those holding AIM shares for the mid to long-term, valuations may be less important until actual disposal. Even after the death of an investor, inheritors may receive the IHT relief without selling the shares they have inherited. In essence, they may be in a position to wait for the market. However, the timing of death can never be predicted and it’s the valuation at the time of death which determines the amount of BR available. Considerations for investment / Five key positives “The economy is doing very well. What is more, this economic reality takes into consideration that our exit may be on no-deal/ WTO terms. It is not a given that markets and economies march in lock-step, but the two are connected. And rarely have sentiment and fundamentals been such poles apart – investors may not be offered a better opportunity for a long time.” — JOHN BARON