London: Aim is more miss than hit for investors. Investors had little to celebrate at the 20th anniversary of London’s Alternative Investment Market this week, as research revealed that nearly three quarters of the companies ever to list on the junior market had been loss-making.
Over the past two decades, close to 3,000 companies have listed on Aim, but 72 per cent of them have never produced a return for investors, according to professors Elroy Dimson and Paul Marsh of London Business School. Worse, nearly one in three Aim companies have resulted in shareholders losing 95 per cent or more of their initial investment.
“Over the past 20 years, £100 [Dh582] [invested in Aim] would have become £83, even with dividends reinvested,” said Prof Marsh. “But if you had put £100 into non-Aim smaller UK companies, you would have quintupled your money.”
Aim’s higher level of initial public offering (IPO) companies, growth companies and tendency toward investment fads — be it overseas property or resources stocks — has contributed to the poor performance of the index.
For this reason, Prof Marsh argues that private investors are the “least qualified” to navigate Aim’s often choppy waters, despite the array of tax incentives now available to them. London Stock Exchange data show that £4 billion flowed into the market in 2013-14 when Aim shares were permitted to be held in Individual Savings Accounts (Isas) for the first time. Stamp duty on Aim share purchases has since been scrapped, and certain shares, once held for two years, can be passed on free of inheritance tax.
Prof Marsh feels the latter tax break has been “distortionary” as some investors will be prepared to pay more as a result. “Aim stocks, as a group, do not look cheap to me,” he added.
In a market characterised by extremes in performance, what keeps investors coming back to Aim are the 39 companies in the index’s short history that have produced a return in excess of 1,000 per cent.
Ranking these in order, the standout winner is online fashion portal Asos, where a £1,000 investment in 2001 would now be worth more than £162,000 (and Numis, the corporate broker to Asos and many other Aim companies, is ranked second).
“I will be straight on the phone to our instiutitional investors telling them that,” said Nick Robertson, chief executive of Asos. “Back in those early days, being listed on a public market meant more column inches in the business press. As a growing company trying to get more fashion brands to come on board with us, Aim gave us credibility.”
Now a £3 billion company, Robertson has no plans to leave Aim. “Online fashion is a highly contested space. In the past, we needed to put remuneration packages in place for individuals akin to a private equity company, and because of Aim, we could do that.”
Marcus Stuttard, head of Aim at the London Stock Exchange (LSE), said there had been plenty to celebrate for the growth companies and stock brokers who have collectively raised £92bn in the 20-year history of the index — quite an achievement, considering similar growth markets in Europe had failed to get off the ground.
“Aim now has a strong core of investors from private investors to institutions,” he said. “Aim is distinguished by having a very broad sector split and companies operating and managed in 100 different markets.”
Nonetheless, there have been calls for the LSE to tighten its regulation of the junior market following big busts — including ScotOil and African Minerals — and a string of near-failures ranging from insurance group Quindell, whose shares fell more than 80 per cent last year, to Rangers International Football Club, which was delisted after a series of boardroom battles.
Tim Ward, chief executive of the Quoted Companies Alliance, said: “The coffee shop always needs to be refurbished from time to time”.
In response, the LSE has been quietly consulting on potential regulatory changes, though several market participants said the changes being mooted would be minor.
Stuttard said: “We have continued to evolve the model and will continue with education. Our enforcement activity is about educating participants”.
Nevertheless, the champagne flowed at Old Billingsgate Market in London this week at a city dinner to celebrate 20 years of Aim which featured a “best of British” menu — including whipped Cornish yarg, and English asparagus with a cockle butter sauce.
Aim investors may have found lobster a more appropriate menu choice. Many have found to their cost that there are hundreds of small and illiquid “lobster pot” companies on Aim — so-called Prof Dimson says because it is “easy to get your money in, but impossible to get it out again.”
Many happy returns, Aim — or maybe not.