Bill Brown, head of pan-European small cap equities at ISIS Asset Management, is predicting another good year for smaller companies and the Alternative Investment Market.
Along with Robert Mitchell, ISISdirector small cap funds, Brown believes the interest rate environment coupled with improvements in balance sheets last year have set the scene for another positive year for smaller companies.
The gains will come despite expected interest rate increases, Brown says.
Interest rate rises are traditionally seen as bad for smaller companies, but even with the forecast base rate increases through the rest of 2004, rates will still be at historically low levels. ISIS forecasts an end-of-year base rate of about 4.75%.
Share price gains of between 50% to 70% last year helped many AIM-listed firms refinance to put their balance sheets in order, which will help this year when gains are not expected to be anywhere near as much.
AIM itself is set to go from strength to strength.
Last year it snagged some 70% of the European IPO market, and companies have raised about £250m through the market already this year, Brown says.
The cheaper cost of listing, and the less onerous rules applied by the London Stock Exchange compared to stocks with main listings, are driving firm’s to AIM.
These are also reasons why a growing number of firms are making the trek from a main listing to an AIM listing – some 60 companies made the switch in 2003.
The market has also survived the three-year bear market with aplomb, providing the liquidity levels many though would not be there, and now being seen as less risky than some previously thought, Brown adds.
Five years ago it was difficult to find any institutions putting money into AIM, whereas this is now the norm when looking particularly at the smaller companies sector, where the difference attributed to an AIM versus main listing is considered immaterial.
"It's about the quality of the company," Brown says.
Money invested in AIM stocks also continues to benefit from significant tax advantages, he adds.
For example, AIM stocks are treated as unquoted ones for CGT purposes after two years of holding them.
So significant are these advantages, that Brown says he would not want to give them up in return for AIM-listed shares becoming treated for taxation purposes in the same way as shares which can be held in ISA accounts.IFAonline
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