At the other end of the spectrum IPOs are returning to the junior market, AIM, and have helped it grow for the first time in six years, with £881m raised in the last year representing a 70% year-on-year increase.
AIM high
Laurence Sacker, a partner at UHY Hacker Young, said: “There is a definite sense of optimism around AIM at present. Returning to growth for the first time since the credit crunch is a very significant moment for the market.”
He added that AIM has undoubtedly struggled through some very lean years since 2007, with plenty of IPO plans shelved. These numbers – 56 companies joined AIM in the past 12 months – suggest an increased level of activity at the AIM level.
The immediate future is looking healthy as well, with Sacker seeing plenty of pipeline business, describing 2014 as “a real bounce-back year for AIM”.
Putting this in context, the equivalent 12-month period in 2006/7 saw £8.8bn raised though AIM IPOs, more than ten times the most recently published figure.
AIM is already a market with over 1,400 shares and is host to companies that have a market cap of £1bn, contrary to the general impression it gives.
Another who is positive on AIM is Willie Forsyth, head of investment at Charlotte Square, who says: “We can say that AIM investments are extremely attractive in their own right” rather than just being a tactical investment for tax mitigation.
Moving slightly further up this cap scale, the top four best-performing sectors according to the most recent IMA stats are Japanese Smaller Companies (38.2% year-to-date), North American Smaller Companies (27%), UK Smaller Companies (23.7%) and European Smaller Companies (23.6%).
From little acorns…
The two sectors that follow are Japan (23.1%) and North America (22.2%) so the smaller company equivalents are taking advantage of a wider trend as investors turn towards Japan (more tactically for now) and the US (longer-term strategically) for their equity exposure.
In an interview with Portfolio Adviser, Miton’s UK Multi Cap fund manager Gervais Williams explained that the advantage of small businesses for him are that they do not necessarily need the economy to grow for them to grow.
Elsewhere, another unconstrained fund adding to its small-cap exposure is Legal & General’s UK Alpha run by Richard Penney who, alongside holdings such as Prudential (with a market cap of £22bn), has 70% of his fund in AIM stocks.
And then there is the specialist fund such as Giles Hargereave’s Marlborough Microcap fund that is up 30% in a year and 92% in three.
If Forsyth is right when he says: “History shows that smaller companies are the wealth creators and employers of future years”, then Japan, the US, the UK and Europe all have a bright long-term future indeed.
