AIM stocks had far outstripped their main market counterparts since the stocks were made ISA-ble last August, but this has come to an end in dramatic fashion.
Many of the stocks most popular with retail investors have suffered the most, highlighting the risks of investing in the high-growth index. The professionally run AIM funds have done much better, however.
Data from FE Analytics shows that the FTSE AIM has fallen further than the FTSE Small Cap and FTSE All Share indices in 2014, and is down 9.29 per cent from its peak in March.
Performance of indices in 2014
Source: FE Analytics
Some stock specific issues have weighed on the index, with Quindell, the largest stock by market cap, losing over 50 per cent of its value this year.
A number of allegations were made against Quindell online by a self-styled research company suspected of being linked to short-sellers. Shares fell 55 per cent following the allegations despite the company’s vehement denials.
Such was the stock’s rise, however, that it has returned to where it was at the start of the year.
Performance of stocks in 2014
Source: FE Analytics
The board of directors have been buying shares to reassure investors and have instituted legal action.
Today Tom Dobell, manager of the £7.2bn M&G Recovery fund told FE Trustnet that he was sticking by the company, although there was some merit to some of the issues raised.
Quindell’s troubles highlight one of the issues with AIM stocks that cause retail investors concern.
Because of the relatively lighter regulation and the fact that the companies are less well covered by financial institutions many retail investors fear poor accounting and are very amenable to being swayed by a scare story, true or false.
Having risen so fast on the back of strong retail investor demand it would certainly have appeared a prime target for any organisation wishing to manipulate a shorting opportunity, which is what some of the investors in the stock have alleged, including hedge fund manager Davide Serra.
Performance of stock over 3yrs
Source: FE Analytics
Similar allegations were made by the defenders of Blinkx, another highly popular AIM stock to have been hit by serious allegations this year.
Blinkx is down 55 per cent since allegations were made in January by Ben Edelman, a Harvard Business School Professor, over the quality of its traffic and the adware uses of software he claims it is responsible for.
Performance of stock vs indices in 2014
Source: FE Analytics
This was another stock popular among retail investors. BlackRock also had a significant position in it and retain more than 10 per cent of the company.
Oil explorer Gulf Keystone Petroleum is another stock very popular amongst retail investors to have struggled this year: our data shows it is down 49.21 per cent in 2014.
Performance of stock vs indices in 2014
Source: FE Analytics
Run by controversial chief executive Todd Kozel the stock has been well supported by retail investors hoping that oil finds in Iraqi Kurdistan will make them rich.
However, professional fund managers have cast aspersions on the quality of management at the company, and it has struggled for some time.
Professional fund managers have managed to prosper despite the slump in the index, however, even when they hold some of the worst-hit stocks.
This is the case for Gervais Williams, who holds Quindell in his CF Miton UK Smaller Companies fund as its second biggest position.
The fund is up 11.96 per cent as the average IMA UK Smaller Companies portfolio has made just 2 per cent. It is the best-performing fund in the sector despite having 68.8 per cent in AIM.
Cavendish AIM is up 2.66 per cent as the AIM index is down 4.26 per cent, while the CFIC Octopus UK Micro Cap Growth fund has made 5.63 per cent.
Richard Power, head of the Smaller Companies team at Octopus, says that the index is full of exciting opportunities and should get a further boost from the removal of stamp duty last Monday.
“AIM continues to enjoy a strong resurgence, as evidenced by a sustained increase in fundraising activity, with more IPO funds raised already this year than were raised in the whole of 2013,” he said.
“The removal of stamp duty will reduce the cost of trade in secondary shares, which can only be a good thing.”
“AIM offers some really exciting investment opportunities. We expect this latest change to build on the positive momentum behind the AIM market as more investors seek to benefit from the significant growth potential offered through smaller company investing.”
