Andrew Buchanan, manager of the Alternative Investment Market-focused Close Investments Beacon Investment fund, says AIM has momentum on its side and could become Europe's market for smaller companies.
The statement comes as the Beacon fund, an Open Ended Investment Companies (OEIC), celebrates its 10th anniversary, having returned some 71% to investors over the past five years.
”It’s a seriously good trading platform for a wide range of companies,” Buchanan says.
”That helps explain why it’s outlived its European rivals.”
AIM’s successes since being launched in the mid-1990s include seeing off rival markets such as Neuer Markt and Easdaq, while boosting the number of companies listed to some 890 with a total market capitalisation value of more than £24bn as of July this year.
AIM stocks have also paid handsomely to those able to pick winners and hold them over time, Buchanan says, emphasising the investment strategy of the Beacon fund.
”AIM stocks are not risky because they are not profitable,” he says, noting that the number of companies in his fund paying dividends is up, with average earnings growth up 40% from about 25% last summer.
Instead, the risks to investors are similar to those faced by any smaller company, listed or not: for example, there may be over-reliance on a single key customer or a key person within the firm.
Any investor prepared to look at a three to five-year holding term would do well to consider AIM companies, because by nature smaller companies can end up on faster growth tracks than larger ones, Buchanan says.
By the same token, investors should no fret over, for example, the difference between a share price of 50p or 53p on a particular stock, if the price is generally considered good value and there is a chance of getting out in future at a significantly higher price.
Buchanan says his fund has several times bought penny stocks and made a profit by selling shares for several pounds each.
Investing in AIM is not without challenges, however, as Buchanan points out.
While the market may have overcome its early days “Wild West” image, it must still get strategic decisions right if it is to maintain its path of growth.
One issue is the wide spread of market capitalisation values between the smallest and biggest firms listed.
Currently the relative values are £771m versus as little as £80,000: raising such a small sum through listing on AIM may become less attractive if, for example, the Ofex market gets its act together on promoting competing market makers.
This would enable the smaller Ofex market to create a truly liquid and more accessible market for the smallest listed firms looking to raise money in the most efficient way possible.
Attracting more firms from Europe is another challenge to the market.
Many firms based in former colonies such as Canada, Australia and even the US have sought AIM listings as a way of accessing new money, yet this has not been reflected in similar numbers of firms coming from other EU states.
”To keep growing, it has to adopt some sort of European mantle,” Buchanan says.
A recent listing of an Italian telecoms firm has sparked hopes the AIM market is on the right track – the firm chose a listing in London ahead of one on a market for smaller companies located in Milan, Buchanan says.
As an institutional investor, he has also seen examples of Central and Eastern European firms considering listings on AIM, however these firms have yet to make the full commitment required.
Still, with AIM’s track record of attracting smaller firms from other countries to implement their primary listings here, there is a good chance companies in countries such as Poland would consider the market ahead of others.
AIM’s ability to attract companies from across a spread of sectors has also stood it in good stead when compared to competitors, Buchanan says.
Unlike, for example, the now defunct Neuer Markt, which specialised in so-called TMT (technology, media, telecommunications) stocks, AIM has a bevy of engineering, manufacturing, support services, and resource companies stocks.IFAonline
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