AIM at 30: is it still worth bothering with?

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

First, AIM is deliberately regulated more lightly than the Main Market of the stock exchange, in a bid to encourage smaller companies to seek a stock market quotation and raise money without too onerous a regulatory burden. But it is this lightness of touch that may have attracted a disproportionately large number of company promoters more interested in their own enrichment than in building profitable and sustainable businesses. Some proved to be outright fraudsters.

Second, a significant proportion of AIM is accounted for by small companies involved in oil and gas or the extraction of other natural resources. In many cases these companies started with just the right to drill or mine and turned to AIM to raise the money needed to fund development to the point that the oil or other resources could be extracted and sold. But this is a highly risky business: numerous things can go wrong, technically, legally and financially, and many of these companies never reached the stage of profitable extraction. If they happened to be led by the kind of questionable managers mentioned above, things were even more likely to go wrong.

Third, AIM was home, during the dotcom boom and bust, to many small technology companies that sought to ride the wave of enthusiasm for the internet in its early days. Many of these companies were founded on little more than an idea and had no path to profitable exploitation of any online traffic they were able to attract. Numerous AIM technology firms went bust or saw their shares lose almost all their value when the bubble burst.

Fourth, AIM offered until recently a very generous tax break: there was no inheritance tax to pay when AIM shares were bequeathed as long as they had been held for more than two years and certain other conditions were met (the rate of IHT relief was recently cut from 100% to 50%). But this may have encouraged investors to relax their standards and put money into companies that they would otherwise have avoided – and unscrupulous operators were there to meet the demand.

• Read: 5 tax hacks: how to make financial gifts without a big tax bill 
   

What does the future hold for AIM?

While the AIM All Share index has broadly gone nowhere over the past two years, the number of companies quoted on the junior market has been falling. From a peak of nearly 1,700 in 2007, the number had fallen to 679 by mid-February. In the year to February just 10 companies joined AIM while 61 left, said UHY Hacker Young, the accountancy firm.¹ Companies leave for a variety of reasons, including a move up to the Main Market, a takeover by another company or a decision to become a private company.

Abby Glennie, a fund manager at Aberdeen, the asset management company, said: ‘AIM was once a thriving market, but it has been brutally knocked back by outflows in recent times. We are seeing many of the biggest and best AIM companies moving to a Main Market listing. It is a very ominous sign. Eventually we will be left with a tiny, illiquid market.’

Charlie Morris of ByteTree, an investment analyst, told Fidelity: ‘A glance at the chart shows how depressed AIM stocks are, in particular when smaller companies on the stock exchange’s Main Market have done quite well. There are some amazing companies on AIM, such as Jet2, SigmaRoc and Fever-Tree, but they have been battered in the aftermath of the 2021 bubble and are the last to recover. That said, we do expect them to recover in the end.’

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns from 31.5.20 to 31.5.25. Excludes initial charge.

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¹AIM shrinks by 61 companies in 2024/25 - companies left on AIM at lowest level since 2001 | Insights | UHY Hacker Young

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