AIM high: At 25, the junior index is coming of age
In June, AIM turned 25 years old. The index has passed its somewhat risky youth and maturity is treating it well.
With stripped-down regulatory and governance requirements, the junior exchange has, over the past 25 years, offered companies an easier platform to raise capital. As the London Stock Exchange puts it, “AIM helps founders and entrepreneurs fulfil their growth ambitions and potential”.
However, the depiction of AIM as a junior exchange is outdated. The market thrives with the characteristics of maturity.
The junior exchange, which initially listed with just 10 companies and a combined market capitalisation of £82m, now has more than 830 companies worth a total of £98bn as of May 2020. This of course includes some large household names, such as the drinks maker Fever Tree and online fashion sites Asos and Boohoo. The latter has the largest market cap on AIM, valued at £4.5bn, putting it ahead of some of the lower members of the FTSE 100.
As more companies on the market have become profitable, the wheels of time have led AIM into a state of maturity, very different to the risky newborn which emerged in 1995.
Where high-growth targets previously caused AIM companies to prioritise reinvestment, the companies that have grown significantly are now able to realign their investment priorities. Just over 10 years ago, only one third of AIM’s constituent companies paid dividends. Today, despite the current market conditions leading several companies to pause their dividends, AIM company pay-outs have nonetheless tripled since 2012.
This emerging maturity of the AIM market does not mean it has lost touch with its early values. The junior exchange still offers newcomers the best opportunity for growth. One key element of the attraction for AIM investors is the opportunity to identify stocks that will deliver fast growth over a short period. That can certainly be found among its constituents, often in sectors such as natural resources or pharmaceuticals.
For example, last year the top-performing AIM share was the Irish oil and gas explorer, Petrel Resources, which rose over 1,700 per cent. In the pharmaceuticals sector, meanwhile, Silence Therapeutics saw returns of nearly 700 per cent. More recently the supplier of coronavirus testing kits to over 80 countries, Novacyt, saw its share price increase 30 times over a three-month period.
Of course, AIM has its shortcomings too. Questions are often raised around the low levels of regulation of its listed companies, which can lead to poor governance standards. However, the flip side is that the cut-back regulations of AIM — in comparison to the main FTSE index — have added to its attractiveness. Some larger, better established companies prefer to list on AIM for this reason, and therefore, somewhat ironically, despite the market being known for growth, some of the best performers have been low risk and high value.
Over the course of a quarter of a century, AIM has changed almost beyond recognition. Unlike its youthful self, full of risk, it is now an attractive platform for both investors betting on young companies for short or long returns, and the seasoned pros looking for highly valued companies.
In other words, AIM has kept all the best elements of its early beginnings, while assuming some of the characteristics of its older sibling as it comes of age.
Main image credit: Getty