AIM was designed to help smaller companies access shareholder funding, but it is not only the home of fledgling start-ups: there are a number of well-established companies that could be interesting long-term holdings.
Most AIM stocks are also exempt from inheritance tax if held for more than two years, meaning that investors will be able to build up a tax-free lump sum to pass on to their children, allowing them to benefit from the ISA exemptions from income and capital gains tax.
FE Alpha Manager Giles Hargreave points out that the market as a whole is likely to be boosted by a surge of new money when the rules come into force, meaning that investors have an extra incentive to start putting together a position now.
Here we look at a few of the stocks that are popular with FE Alpha Managers and are likelier candidates for inclusion in a retail investor’s portfolio.
ASOS
Online retailer ASOS still trades on AIM despite having reached a market cap of £3.4bn, almost large enough to qualify for inclusion in the FTSE 100.
The company was listed on the market in 2001, and has rocketed up by 18,431.83 per cent since then, according to data from FE Analytics.
Stocks often power ahead in their earlier years before the rate of growth slows, but our data shows that growth has continued at a strong pace even recently.
Over three years the stock has made 409.35 per cent, compared with 50.61 per cent from the FTSE All Share.
Performance of stock vs index over 3yrs
Source: FE Analytics
The company has increasingly been focusing on international expansion to maintain its success and in February said that overseas markets made up 59 per cent of its total sales. It is aiming to launch Russian and Chinese websites by October.
FE Alpha Manager Harry Nimmo has long been a fan of the stock and holds it in his Standard Life UK Smaller Companies fund – having bought it when it was still small.
The company makes up 5.4 per cent of the portfolio and is also a top-10 holding in Baillie Gifford British Smaller Companies, Marlborough UK Leading Companies, Rathbone Global Opportunities and seven other funds.
James Halstead
FE Alpha Manager John McClure has the second-best record of any UK manager over the past three years, having made 92.4 per cent, according to FE Trustnet figures – a fraction behind the 93.5 per cent of fellow FE Alpha Manager Mark Martin.
His open- and closed-ended income funds both sit top of their respective sectors over three and five years.
AIM-listed James Halstead, a commercial flooring manufacturer, is a top-10 holding in the Acorn Income investment trust, making up 3.5 per cent of the portfolio.
McClure praised it in an earlier interview with FE Trustnet as a "true blue chip" thanks to its record of growing its dividend for 36 years in a row.
The company has a market cap of just over half a billion, larger than some companies on the FTSE 250 index.
According to our figures it has done well over the past five years, along with the broader market of companies that size.
James Halstead is up by 73.69 per cent over the past three years while the FTSE 250 has made 67.98 per cent. However, it has been much more volatile over the past year.
Broker Shore Capital currently rates it as a "hold".
Performance of stock vs index over 3yrs
Source: FE Analytics
Iomart
Iomart is much smaller than the two preceding companies, and at a market cap of £275m is the equivalent size of a company on the FTSE Small Cap index.
The company runs cloud computing services for other businesses and is held by a number of managers with excellent track records.
FE Alpha Managers Anthony Cross and Julian Fosh have a 4.16 per cent position in the company in their Liontrust UK Smaller Companies fund, making it a top-decile performer in its sector over five years.
It is also a top-10 holding in the Cavendish AIM fund, at 3 per cent, the Franklin UK Smaller Companies fund at 2.89 per cent, the Threadneedle UK Smaller Companies fund at 2.3 per cent and L&G UK Alpha at 3.83 per cent.
Fraser MacKersie has 5.6 per cent of his Unicorn Free Spirit fund in the company; he told FE Trustnet in an interview last year that firms such as Iomart, which makes the infrastructure that companies use to benefit from the internet, show the way to make money out of technology in the long-term rather than the fashion-bound consumer market.
Over the last three years the company’s shares have risen by 416.22 per cent as the FTSE Small Cap index has risen 58.09 per cent.
Rockhopper/Borders & Southern
Danny Cox, head of advice at Hargreaves Lansdown, says he sees a lot of investors putting money in to the resources and mining shares that make up much of AIM in the hope their children will benefit from the move.
Investing in resources is a high-risk strategy with potentially high returns, and one that regulatory changes have arguably made more attractive.
Investors can tuck away money in stocks such as Rockhopper and Borders & Southern, which are engaged in hunting for oil off the Falklands Islands, and pay no income tax or CGT on the stock. They can then pass them on IHT-free to their children, potentially leaving them with a windfall if their exploration activities pay off.
Shares in both companies are highly volatile, and rise and fall on the latest news from their digs. Currently both are down significantly over three years, according to our data.
Performance of stocks over 3yrs
Source: FE Analytics
iGas
Another high-risk energy strategy is to look at investing in shale gas. The UK has enough gas to power it for many decades, waiting to be extracted using controversial "fracking" techniques.
Despite environmental lobbying, it seems the government is keen to encourage the development of the industry, although there are likely to be bumps along the road, and investors may have to wait many years for the pay-off.
FE Trustnet looked in detail in an earlier article at how to invest in the new industry, and found that one of the few routes open to retail investors was through AIM-listed iGas, which holds about a third of the UK’s licences.
The shares have had a rocky ride, but are currently up 54.17 per cent over three years, according to FE Analytics data.
Performance of stock over 3yrs
Source: FE Analytics
Thanks to the new regulatory changes, it could be one worth tucking away for the future.
