Interactive Investor

Why AIM has been the UK index to own in 2020

3rd July 2020 14:24

Andrew Hore from interactive investor

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Our award-winning small-cap shares specialist runs through the best and worst stocks and indices so far this year.

AIM has been one of the best-performing major markets around the world in the second quarter of 2020. Of course, there was a contrast in market performance between the first and second quarter, particularly on AIM, which is not as good a performer over the first six months of the year, but it has still thrashed the other major domestic stock market indices. 

Nasdaq has been the best performer in the first half of 2020, by far. Only Nasdaq indices and the Shanghai-based CSI 300 index increased over the six-month period. The Nasdaq 100 rose by 16.3% and Nasdaq Composite by 12.1%. Pharma is a significant sector on Nasdaq, and this is likely to have helped the performance given the focus on Covid-19-related companies. The CSI 300 rose by 1.6%. 

AIM underperformed the German and Japanese markets in the first half, but it outperformed the UK Main Market measures. The FTSE AIM All-Share index and the FTSE AIM 100 index both fell by nearly 8% in the first half. The FTSE UK 50 index fell by 11.3%, but that was still much better than the FTSE 100 index which fell by 18.2%. The FTSE All-Share index fell slightly further. 

Nasdaq has not outperformed by much over the second quarter, though. The Nasdaq Composite index rose by 30.6% in the second quarter, compared with just over 29% for both the AIM All-Share and the AIM 100. The AIM UK 50 has lagged the other AIM measures, but still rose by 26.8%. 

The FTSE 100 index is the worst performer of the main UK performance measures with a rise of 8.8%. Oil and gas, financial (particularly banks) and property companies were among the worst performers of the FTSE 100 constituents during the second quarter. 

The German DAX Xetra index improved by 23.9% in the second quarter, while the Dow Jones Industrial Average and the Nikkei 225 were both 17.8% ahead during the period. The French CAC 40 index increased by 12.3%, while the political upheaval in Hong Kong has probably held back the Hang Seng index, which has risen by 3.5% - it is still 13.3% lower over the first half. 

Stock market index % change H1 % change Q1 % change Q2
NASDAQ 100 16.3 -10.5 30
NASDAQ Composite 12.1 -14.2 30.6
CSI 300 Index (Shanghai) 1.64 -10 13
SSE Composite Index (Shanghai) -2.15 -9.83 8.52
S&P 500 -4.04 -20 20
Swiss Market Index -5.38 -12.3 7.88
Nikkei 225 -5.78 -20 17.8
DAX Xetra (Germany) -7.08 -25 23.9
FTSE All-World -7.27 -21.8 18.6
FTSE AIM All-Share -7.78 -28.8 29.5
FTSE AIM 100 -7.97 -28.9 29.4
Dow Jones Industrial Average -9.55 -23.2 17.8
FTSE China 50 Index -9.59 -14 5.12
FTSE All-World Index - Europe   ex UK -10.7 -23.7 16.9
FTSE TechMARK All Share -11.1 -20.2 11.4
FTSE TechMARK Focus Index -11.2 -21.6 13.3
FTSE AIM UK 50 -11.3 -30 26.8
Hang Seng (Hong Kong) -13.3 -16.3 3.49
Euronext 100 -14.7 -25 13.8
S&P BSE 100 Index (Mumbai) -14.9 -29.2 20.1
FTSE SmallCap -15.8 -28.4 17.6
FTSE Fledgling -17 -33.1 24.1
CAC 40 (Paris) -17.4 -26.5 12.3
Bovespa Stock Index (Brazil) -17.8 -36.9 30.2
FTSE 100 -18.2 -24.8 8.78
FTSE All-Share -18.7 -26 9.77
FTSE 350 -18.8 -25.9 9.52
Russian Trading System Index -21.3 -34.5 20.1
FTSE 250 -21.8 -31 13.4

Source: SharePad

Star AIM stocks in 2020

It is no surprise that the best-performing AIM share this year has been Covid-19 test developer Novacyt (LSE:NCYT), where the share price is more than 20 times the level it was when the year started. 

Four of the other companies in the top ten are also pharma companies that are involved in Covid-19 tests or potential treatments. All of those companies have raised money in the first half.

AIM performance  
Company % change H1 % change Q1 % change Q2
Novacyt (LSE:NCYT) 1,940 1,410 34.9
All Active Asset Capital (LSE:AAA) 625 75 314
PowerHouse Energy (LSE:PHE) 586 83.3 274
Synairgen (LSE:SNG) 581 938 -34.4
Greatland Gold (LSE:GGP) 567 161 155
EQTEC (LSE:EQT) 548 56.5 314
Avacta (LSE:AVCT) 526 26.1 397
Starvest (LSE:SVE) 473 107 176
e-Therapeutics (LSE:ETX) 456 164 111
Genedrive (LSE:GDR) 353 24.4 264

Source: SharePad as at 30 June 2020

Synairgen (LSE:SNG), which is involved in a clinical trial for treating Covid-19 patients with one of its compounds, is the only one of the top ten where the share price has fallen in the second quarter. This might be because there have been two major sellers during the period.

Lansdowne Partners had 25 million shares in April, and this holding has been reduced to 17.5 million shares. 

There is also the former Woodford share overhang, which became controlled by Link Fund Solutions when Woodford lost the management of the LF Woodford Equity Fund.

Link owned 21.3 million shares at the end of March, and these were transferred to US-based Acacia Research Corporation when it bought a portfolio of pharma investments from the fund. Acacia reduced the stake to 18.8 million shares on 9 June – the day after it took control of the holding. 

The Synairgen share price dropped from 43.5p to 38p on the day the transfer took place. It fell to a low of 34p before it recovered again. 

Acacia has completely sold its stakes in other AIM-quoted companies, such as Midatech Pharma (LSE:MTPH), Mereo BioPharma (LSE:MPH)and 4d pharma (LSE:DDDD). Acacia’s purchase of the portfolio of shares appears to be opportunistic with Link keen to offload the shares so it can pay cash back to investors and progress with the wind down of the former Woodford fund. 

There is probably a concern that any upturn in the Synairgen share price could lead to the dumping of shares. 

Avacta (LSE:AVCT) is the only one of the top ten performing pharma companies that is in the AIM 100 and it is a recent addition.

So, although it is the best performer in that index during the second quarter most of the outperformance is likely to have happened prior to becoming a constituent. 

There are ten AIM 100 constituents where the share price rose in the first and second quarters, although that includes Avacta.

Mining companies Greatland Gold (LSE:GGP) and Highland Gold Mining (LSE:HGM) and clean energy technology developers ITM Power (LSE:ITM) and Ceres Power (LSE:CWR) are some of the consistent winners. 

AIM 100 performance      
Company % change H1 % change Q1 % change Q2
Greatland Gold (LSE:GGP) 567 161 155
Avacta (LSE:AVCT) 526 26.1 397
ITM Power (LSE:ITM) 271 66.7 123
Ceres Power (LSE:CWR) 106 27.9 61.5
Naked Wines (LSE:WINE) 96 11.1 76.5
Frontier Developments (LSE:FDEV) 51.4 1.3 49.4
Uniphar (LSE:UPR) 50.2 -7.4 62.2
Pan African Resources (LSE:PAF) 46.3 -20.8 84.7
Team17 (LSE:TM17) 45.9 53.1 -4.7
Renalytix AI (LSE:RENX) 45.6 -39.6 141

Source: SharePad as at 30 June 2020

Video games developer Frontier Developments (LSE:FDEV) and wine retailer Naked Wines (LSE:WINE) are both benefiting from increased online usage. In the case of Naked Wines, the share price, despite nearly doubling this year, is only back to the level it was two years ago (then known as Majestic Wine) and is well below the peak in 2013.

Naked Wines has focused on building up online sales in the US and it says that the COVID-19 lockdown has meant that it has made progress it would have taken years to achieve under normal conditions. 

Best of the rest

The second-best AIM 100 performer in the second quarter is ASOS (LSE:ASC) which has risen by 186%, having fallen by 64.6% in the first quarter. The share price was slightly higher over the six months.

Only airline operator Dart Group (LSE:DTG) did worse than ASOS in the first quarter, and although it did rise by 52.4% in the second quarter the share price has still halved over the year so far. 

These two are major constituents of the AIM 50 and must be a major part of the relative underperformance of that index. 

ASOS rival Boohoo (LSE:BOO) had a similar trend with its share price but the first quarter decline was not as sharp, and the first half improvement was 38.3%. 

There was another big swing in performance from first to second quarter by Renalytix AI (LSE:RENX) with a first quarter decline of 39.6% and a second quarter rise of 141%. That made it the tenth best AIM 100 performer in the first half. There were positive results from the clinical validation for the KidneyIntelX kidney disease diagnostics platform and plans to float on Nasdaq. 

Greatland Gold has been on an upward trajectory for the whole year with a barely noticeable decline in early March.

The Australian gold explorer has put out a steady flow of positive announcements this year and it is the most consistent performer in the AIM 100. It was the top performer over six months and in the first quarter, while it was third best performer in the second quarter. 

There has been a dearth of AIM new admissions this year, but the most recent has provided a positive story for any companies thinking of floating (management consultancy Elixirr is considering a flotation this month).

Insolvency and financial services provider FRP Advisory Group (LSE:FRP) joined AIM on 6 March and raised money at 80p a share. The share price slipped to 77.5p by the end of March, while in the subsequent quarter it has increased by 58.7%. 

…and the worst

Looking at the worst AIM 100 performers, although investment manager Premier Miton (LSE:PMI) has recovered in the second quarter it is still 46% lower in the first half – the third worst performer. Considering the performance of the markets, this decline seems too harsh.

There were net outflows of £389 million in the six months to March 2020. To put that in context, assets under management were £9.15 billion at the end of March and they rose to £9.93 billion by the end of April. 

Premier Miton is expected to be making a third quarter trading statement on Thursday 9 July. It is worth keeping an eye on this statement because it may provide evidence that the share price fall has been overdone.

Floorcoverings and ceramic tiles supplier Victoria (LSE:VCP) has reassured the market that, after a sharp downturn in March and April, revenues are recovering.

In a three-week period in June, trading was 85% of pre-Covid-19 expectations. Australian revenues were 105% of pre-Covid-19 expectations, but the European markets are still recovering. Carpet sales should improve as UK stores come out of lockdown.

The €500 million bond issue in the past year has a fixed interest charge and no significant covenants so the debt level is not a worry. There are spare bank facilities that could be used for acquisitions. 

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct. Members of ii staff may hold shares in companies included in these portfolios, which could create a conflict of interests. Any member of staff intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. We will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, staff involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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