We compare AIM's performance over the years and how, in these difficult times, the junior market can keep beating the rest.
The AIM market has cause for celebration as it approaches its milestone 25th anniversary on 19 June, says interactive investor, the UK’s second-largest direct to consumer platform.
The AIM All-Share Index has recovered quicker than the FTSE 100 and the broader FTSE All Share index, returning 49% versus 27% and 29% respectively since 23 March 2020, which marked a low point for many markets across the globe, to 10 June 2020.
Over the last year, the FTSE AIM All Share has fallen 8%, compared to -11% for the FTSE All Share, and over five years it is up 21% versus 7% for the FTSE All Share (to end May 2020).
But over the longer-term performance is less than stellar. The market trails the FTSE All Share over the past 10 years (up 43% versus 80%) to 31 May 2020. Over 22 years (as far back as the total return data goes) from 2 June 1998 to 31 May 2020, AIM is down 4% compared to +152% for the FTSE All Share.
However, these are total return figures, which load the odds very much against AIM where fewer companies pay dividends. Strip out dividend income, and AIM is up 28% over 10 years versus 17% for the FTSE 100 and 26% for the FTSE All Share.
Set up in 1995 to help growing companies raise funds, AIM gained the infamous reputation of the ‘Wild West’ owing to a history of scandals and company collapse on the market as well as accusations of lack of regulation.
But the junior market has noticeably matured over the years, growing from 10 companies worth a total of £82.2 million to more than 800 companies worth over £70 billion. From an emphasis on dot com’s, through to resource/ miners, AIM today is much broader – from oil, green energy, miners through to retail giants like Boohoo (LSE:BOO) and Fevertree (LSE:FEVR).
But can AIM sustain its current outperformance?
Lee Wild, Head of Equity Strategy, interactive investor, says: “AIM’s recent outperformance has been enhanced by a number of high-profile winners over the past year – especially those involved in efforts to find a vaccine, cure or effective treatment for Covid-19.
“Novacyt (LSE:NCYT) is one of these. Its share price has grown by 1,860% this year on the back of its coronavirus test. It has emerged from relative obscurity to rank six on the list of bestselling shares on interactive investor since the beginning of the year (to 10 June). Novacyt also tops the list of AIM stock bestsellers, ahead of biotech firm Avacta Group (LSE:AVCT) and medical diagnostics company Omega Diagnostics Group (LSE:ODX) in second and third positions, respectively.
“The pandemic has also boosted the performance of gold miners, on the back of a rally in gold prices as investors raced to buy the perceived safe haven asset to mitigate the impact of the heightened stock market volatility on their portfolio. Greatland Gold (LSE:GGP) in particular, which was a penny stock at the start of the year but has since soared by 600% following mining successes, has proved popular among our customer, ranking 4th on the list of most bought AIM shares this year.
“The AIM market is distinguished by its broad sector split and focus on growth areas of the economy, which has contributed to its outperformance, whereas the FTSE 100 has been dogged by the underperformance of the banking and resources sector which account for a significant chunk of the UK blue chip index.
“AIM’s outperformance will depend on how the pandemic continues to affect both the domestic and global economies. Many exciting young companies in certain niches will continue to flourish whatever happens, but others depend on wider economic growth. Any deterioration in the lending environment could also put less stable businesses at risk.
Lee Wild adds: “The AIM market has come a long way over the past quarter of a century, shedding it’s infamous ‘wild west’ reputation to serve as a springboard to some of the world’s most promising companies to secure much needed capital to help them reach new heights.
“One of the biggest myths about the AIM market is that it is for speculative, ‘flash in the pan’, high-risk companies, but this is far from the case. While there have been plenty of companies that have crashed and burned, there have been some huge success stories - from Boohoo, ASOS (LSE:ASC), through to Fever-Tree and Domino’s Pizza (LSE:DOM) which are alumni of the market.
“There are a large number of relatively early stage companies in the market and some of these are unlikely to prosper and some will fail. But the point is that it gives companies a chance to grow, and this will be absolutely key to AIM’s longevity. There are still a number of golden nugget investment opportunities waiting to be unearthed.
“There has been a good clear out over the years. During the dotcom boom, some companies added dotcom to their name as a means of attracting investment – many of which eventually disappeared. In addition, where an AIM market listing was one of the only options for early stage businesses to raise capital, the advent of crowdfunding, venture capital trusts and angel investors has provided alternative routes to capital, meaning that there are more higher quality business at a latter stage in their development on AIM.”
Most-bought AIM stocks on the interactive investor platform this year (to 10 June)
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.