AIM, the Stock Exchange junior share market, is expected to take on a new lease of life following its arrival into the ISA investment world. Several years of lobbying has prompted the government to relent and from earlier this month AIM shares have been put on the same footing as the behemoths of the stock market.
The decision to make AIM eligible for ISAs could produce a surge of activity. Coupled with the removal of stamp duty, effective next year, there is every chance that its time as a backwater share platform could be ending.
Equity Development is one that believes the ISA change could act as a "catalyst in revitalising the share price performance of many AIM-listed companies". The research house adds that "large numbers of investors (and their advisers) will consider investing in AIM shares for the first time. Given how illiquid many (good) AIM companies are, it won't take much marginal additional buying to drive some AIM shares considerably higher".
There is little doubt that AIM (its official name is the Alternative Investment Market) has slumbered in the past few years. Its high point occurred in the madcap internet boom that captivated many investors, both hard bitten and wet behind the ears, into some calamitous decisions. Some in-and-out merchants made a fortune but for many in the investing community the dot.com frenzy was an absolute disaster. AIM attracted many internet companies, including a highly speculative crowd of start-ups, that propelled the market to an all-time high.
Although the main market was also captivated by the emergence of the internet craze, the Footsie index is possibly within sight of reaching the high hit in those boom days. But the AIM measurement is so far adrift that it has an Everest to climb to recapture its peak.
AIM, with its relaxed rules, could be a minefield for the unsophisticated. It accommodates many speculative small caps, some of which I wouldn't touch with a bargepole. Yet it has produced undoubted stars. One is the online clothing business, Asos (As Seen On Screen). It arrived at 20p, giving a value of £12.2m. I recall meeting the company in those early days and concluding the shares were overpriced at 30p. They are, as I write, 4,918p, providing a £4bn-plus capitalisation. Asos is the front runner but others have performed adequately. And, of course Booker, the leader of the no pain, no gain portfolio, is one of many to graduate from AIM to full listing.
The portfolio has always enjoyed a strong AIM contingent. More than half its constituents are traded on AIM as I have enjoyed an allegiance to the rough and tumble of small caps. There have been successes such as the Prezzo restaurants chain and five-a-side football provider, Goals Soccer Centres. But disasters are unavoidable. Profile Media and Pubs'n'Bars spring to mind.
I suppose it is the banking crash that really put the skids under AIM. Although it had failed to regain its internet peak, it did relatively well until many investors took fright over small caps. It was at a dismal low in 2009 and has not made much headway since then.
Although ISA adherents may provide a boost and next year's removal of stamp duty will undoubtedly add to AIM's profile, it would also be helpful if experienced investors lost their apprehension. Many were bruised in the banking crisis, particularly as small caps, with poor liquidity, were difficult to sell. Perhaps the AIM changes will also encourage them back.
After all, officialdom has done its bit. Holding AIM shares in an ISA offers, in effect, a triple tax break – no income tax, no capital gains tax and, in most cases, no inheritance tax after two years. I would suggest that sticking to the blue bloods of AIM could be rewarding. But investors, particularly those venturing forth into such deep waters for the first time should take extreme care. Some decent stocks are already listed; others are arriving. One newcomer is Conviviality Retail, the Bargain Booze chain. It has enjoyed a bubbling welcome and could be a sound long-term buy.