David Prosser: Companies on the under-the-radar Aim provide lesser-spotted value as the whole index performs
Has the Alternative Investment Market finally turned the corner? After several years in which it has been unable to match the returns generated by main market equities, Aim is on target to top the rankings this year.
As of yesterday, Aim was up more than 16 per cent over 2013, well ahead of the single digit returns recorded by indices such as the FTSE 100 and the FTSE All-Share. The largest companies on Aim, moreover, have risen by more than 30 per cent this year.
That outperformance, which has really picked up during the second half of the year, will delight investors frustrated at Aim's previous inability to keep up the recovery seen elsewhere in UK equities. Last year, for example, smaller companies on the main market returned 24 per cent to Aim's 2 per cent.
It isn't just performance that is improving on Aim – so too is the health of the market itself. After a period of more than five years in which companies have departed Aim at a far swifter pace than new joiners have arrived, this trend has reversed. With around 1,100 companies today, Aim is unlikely any time soon to return to the heady days of 2007, when its constituents numbered 1,695, but the market is growing.
Nor does the accusation often levelled at Aim that its less rigid regulatory requirements represent a haven for the dodgy and the dubious any longer hold much water. In recent times, the 160 companies that have transferred from the junior market to the Official List have found it straightforward to comply with the more exacting rules on the main market.
No doubt there will be setbacks in the years ahead – the system of nominated advisers remains problematic – but governance standards have undoubtedly improved. The 80 biggest Aim stocks each have a market capitalisation of more than £250m. These smaller companies are not so small, and are mostly run accordingly.
However, the best thing about Aim for ordinary investors is that it remains below the radar for the vast majority of investment institutions. This means it is still possible for amateurs to spot bargain stocks that the professional investors have overlooked.
It helps that the Government has suddenly rediscovered Aim. After years of wondering how to help small companies access finance, ministers remembered that an equity market already exists to help small and medium-sized enterprises do that.
In the summer, it made Aim stocks permissible holdings for individual savings accounts (ISAs). And from next April, there will no longer be any need to pay Stamp Duty on purchases of Aim shares.
These tax breaks have captured the imagination of retail investors. Stockbrokers report that as many as a third of transactions are now for Aim stocks.
Many of these smaller companies consistently deliver on the global stage, but have only just begun to get the recognition they deserve.
Online threat to independent retailers
Good news and bad from the Office of National Statistics (ONS) for independent high street stores.
Their sales were up 4.5 per cent, year-on-year, in November, the ONS said yesterday, compared with only 2.9 per cent growth in larger stores. Less happily, online sales continue to race ahead at a far quicker pace.
Last week's Small Talk focused on the difficulties that small, independent retailers are facing – the challenge comes not so much from their larger rivals, though this remains an issue, but from ecommerce.
Yesterday's figures underline the scale of the problem – the proportion of all retail sales (excluding fuel) made online rose 1.4 percentage points to 11.9 per cent in November, more than ever before.
The conclusion can only be that smaller retailers which do not find a way to grab their share of the ecommerce market are going to struggle to survive.
Executives invest in peer-to-peer leading
The path from business leader to trusted adviser is a well-worn one, with C-suite executives often going on to serve as non-executives at developing businesses in retirement.
However, a new report claims the growth of peer-to-peer lending is encouraging business leaders to get involved with small businesses in a different way – and not necessarily only once they retire.
More than half the high-net-worth business leaders questioned in a survey by FundingKnight, which enables individuals to lend online to small businesses, said they had already tried peer-to-peer lending, or would be prepared to do so.
Graeme Marshall, the chief executive of FundingKnight, said the findings represented the desire of many senior business leaders to give something back to the community, as well as their openness to innovation.
"Peer-to-business lending is tapping into a mood in the UK to do business differently," Mr Marshall said. "Experienced businesspeople are taking their skills and leveraging them to make wise investment decisions that are helping drive the success of other small and medium-sized enterprises."
Small business person of the week
Tom Latchford; Chief executive, Raising IT
"My last job was working for a charity in the disability sector – we were running it in a really old-school way and then Facebook and Twitter came along and the potential for charities just really blew me away. Then I spent some time in the US working on Barack Obama's first Presidential campaign, which really did amazing things with social media.
"We set up Raising IT just over four years ago – to create a simple, easy-to-use platform that would offer charities everything they need to exploit digital opportunities in a single place at an affordable price. It has taken us some time to realise that vision, but we've really begun to scale up over the past 12 months and we've acquired some really big clients – the RSPCA and Mencap, for example.
"We offer services in five key areas: content management, fundraising solutions, ecommerce products, a community system that includes social media and a campaigns offer. The idea is to be able to help charities with everything they might possibly do online.
"The costs have to be affordable, so we charge a £10,000 set-up fee and then an ongoing licence fee, but importantly we don't take any commission.
"We're beginning to see the benefits of economies of scale: in time, we can be the global de facto solution for charities."
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