This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

AIM is no longer a dog, but the mastiffs are the winners

There was an interesting analysis of the performance of AIM stocks in a recent “AIM Journal”, a publication sponsored by Finncap.  As others have pointed out, AIM finally changed course after a long streak of poor performance, and the AIM index actually beat both the FTSE-100 and FTSE-250 indices in 2013.

If you had invested in the AIM index back when it was formed back in 1996, even with dividends reinvested  you would still be losing money. And that is the case even if you added backed the AIM companies that have migrated to the main LSE market. In addition it ignores the impact of AIM delistings where many of those companies were in financial difficulties and investors would have lost out from the poorer valuation of private companies.

But the interesting aspect brought out in the AIM Journal was that most of the improvement in performance was as a result of the out-performance of the  AIM top 50 companies (those in the FTSE AIM UK 50).  That index actually rose by 43%  and is the third year in a row that it showed out-performance over the main AIM index.  

Who is in the AIM-50 index? Such companies as Abcam, Advanced Computer Software, Advanced Medical Solutions, ASOS, Blinkx, Clinigen, Dart Group, EMIS, Globo, Hargreaves Services, Majestic Wine, Monitise, Nichols, Quindell, RWS, Telford Homes, and F.W.Thorpe to name a few at random that might be more familiar. There is a marked absence of many natural resource companies, such as mining and oil companies, who have done particularly badly of late.

Professors Dimson and Marsh have looked at the returns on new AIM IPOs and here is a quotation from the Kate Burgess of the Financial Times based on their analysis: “…disappointing returns have failed to lower over-optimistic pricing of IPOs. Post-float performance of AIM IPOs was strongly negative between 2000 and 2011, according to the profs“, although returns did improve somewhat in 2013 probably because of the general over-excitement in AIM share prices that grew during the year.

However, the moral is surely that if you want to invest in AIM stocks, it might be wise to pick the established larger and stronger ones if these trends continue – the pedigree bull mastiffs of the AIM investment world. But there is a proviso here. The “popularity” of such stocks as ASOS, with investors jumping on this bandwagon for well known larger AIM stocks, might have inflated their prices to unrealistic levels. So whether this trend will repeat itself in 2014 and future years remains to be seen.

Investing in AIM shares at their IPOs or soon after is clearly an exceedingly risky affair though. Many years of experience tells you that and with companies now queuing up to join AIM it is surely the case that history will repeat itself.

Why institutional investors overpay for AIM IPOs is a more difficult question to answer (it is they who set the prices). Is it because they have more money than they know what to do with, in other words cash they must invest in such companies? Answers on a postcard to……

Roger Lawson

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