There are times when you know the answer before you've even asked the question: so it is with a survey of investors in Alternative Investment Market shares by The Share Centre. The stockbroker asked whether the Government should change the law so Aim stocks can be held within an individual savings account, something that's not currently allowed. This would enable investors to shelter all profits from tax – 95 per cent of the investors agreed this was a good idea.
No surprises there. The question, however, is an important one, since a Treasury consultation on whether Aim shares should become eligible for Isa inclusion ended last week.
At first sight, the case for Aim's inclusion in Isas is straightforward. Stocks listed on the main market of the London Stock Exchange are eligible, so why shouldn't investors also be able to shelter shares on the junior market from tax? Moreover, Aim is for fast-growing small and medium-sized companies, exactly the kind of enterprises we are desperate to encourage, given their crucial role as engines of economic growth and job creation.
In addition, many of the companies trading on Aim are successful businesses that would hold their own perfectly happily on the main market. The fashion retailer Asos and the wine merchant Majestic Wine, for example, both trade on Aim, and are therefore unavailable as Isa holdings.
The Share Centre argues that investors deserve the option of including such Aim stocks in their Isas – and that, potentially even more importantly, the change would be positive for the economy, since it would encourage more investment in small and medium-sized companies.
But there are counter-arguments to consider. One is whether investors fully understand the implications of changing the rule. Currently, Aim stocks qualify for capital gains loss relief, which allows investors to reduce their tax bills if they lose money on the investments. That would have to go with Isa inclusion – you couldn't have capital gains tax-free profits as well as relief on losses. The inheritance tax break on Aim shares, which allows investors to pass the stock on to heirs tax-free, might also be at risk.
A bigger issue is whether investors should be given tacit encouragement to invest in a market that is often illiquid and volatile. Putting money into the sort of companies listed on Aim is inherently more risky than investing in blue-chip shares. But given the mass market nature of Isas, extending the shelters to Aim would be tantamount to Government endorsement of investment in these higher-risk stocks.
It's possible making Aim shares eligible for Isas might help with some of these problems – it would certainly provide a boost to liquidity in the better-known companies, for instance. But for every Asos and Majestic Wine, there are another 10 Aim stocks that you've never heard of and where trading volumes are currently paper thin. Many of them are foreign companies that have come to Aim because it's a cheap listing option, with no other connection to the UK.
So on which side will the Chancellor eventually come down? One wonders whether he has already had cold feet about the idea – after announcing that he'd consider changing the rules in last November's Autumn Statement, George Osborne didn't even get round to launching the consultation process until March. Another reason for hesitating is the lower corporate governance standards required on Aim, in particular the information Aim companies must give to investorss.
They ought to meet the standards required on the main market. But that might lessen the attractiveness of Aim to firms considering listing on it.
Link-up will give more information to investors
One problem that continues to haunt junior stock exchanges is the lack of independent information for investors about the businesses listed on them. The crunch in the small and mid-cap broking sector has resulted in far fewer research materials being produced on Alternative Investment Market-listed companies. For rival exchanges, little or no research at all exists on most market constituents.
The announcement by GXG Markets of a new deal with ACF Equity Research is therefore an encouraging development. ACF is to work with companies listed on the GXG platform to offer investors specialist research that will boost knowledge and understanding of the businesses.
GXG hopes the deal will help to improve liquidity on the market, which has been seeking to capitalise on the problems of its rival, Plus Markets, over the 12 months. ACF, meanwhile, claims to offer something new. "We believe the small cap sector is badly served by the major research houses, and this can have a direct bearing on liquidity," says managing director Christopher Nicholson.
Small Business Man of the Week: Jim Cregan, managing director, Jimmy's Iced Coffee
The idea for the business was planted in my mind when my girlfriend, who is now my wife, and I were travelling round Australia. We pulled into a petrol station one day and I came across Farmers Union Iced Coffee. It was amazing and I got hooked on it. I kept writing to the company asking whether I could do a franchise deal and start selling it in the UK.
"They kept saying no. In November 2010, I persuaded my sister to come in with me. She was running a café in Bournemouth and we used it as a lab to experiment with different recipes.
"We were looking to get three things right – the branding, packaging and ingredients. We found a brilliant packaging company, which helped us source the ingredients. We initially made 3,000 cartons. Our first contract was with Selfridges.
"From there, the business really took off. We began distributing through people like Harvey Nicks and lots of independents, and then we did a deal with Waitrose. We're also in Welcome Break service stations and we've just started selling through WH Smith travel outlets.
"We're now just about breaking even. We're hopeful that this summer will be really exciting.
