How To Hunt For AIM Stocks Hitting New Highs

3rd Sep '18 by Ben Hobson

11 comments 10367 reads

This week marks the fifth anniversary of a change in UK tax rules that transformed the investment appeal of many smaller companies.

In 2013 the government gave the green light to hold Alternative Investment Market (AIM) shares in tax-efficient ISA accounts. Instantly, it put most AIM stocks on an equal footing with Main Market companies. For many investors, it meant that smaller firms were now a much more appealing prospect from a long-term buy-and-hold perspective, sheltered from the drag of capital gains taxes.

In the year or so that followed, several well known names joined the AIM market. Among them were firms like Bonmarche, Boohoo, Pets at Home, Safestyle, XLMedia, Bioventix and Fever-Tree. Some started well but hit problems later on. Others went on to deliver seriously impressive returns that you’d struggle to find anywhere else in the UK market.

Overall, AIM has grown in value by 46 percent in the five years since the tax changes took effect. Back then, the market was home to 1,092 companies that were together worth £69.4bn. Today there are 942 companies that are worth £112.8bn. For much of the past 18 months, the AIM All-Share index outpaced all the other main UK indices.

While there have been some impressive successes, AIM remains home to hundreds of small, highly speculative stocks. These firms (and they don’t even have to be that small) can be risky, difficult to trade because of poor liquidity and prone to sudden collapses. In recent years there have been examples of firms suffering from poor management, fraud, bad luck and tough competition in any combination.

But despite these risks, the tax incentives and the potential for multi-bagger performance are an understandable draw for investors. It’s also undeniable that there are some really excellent companies quoted on AIM.

Shares Awards: If you’d like to help support Stockopedia, you can vote for us in ‘Best Investment Software Programme’ (Category 15) and 'Best Customer Service’ (Category 7) at the Shares Awards. Here’s the link.

Hunting for top performing small-caps

To get an idea about which stocks are currently catching the eyes of investors, a useful strategy to start with is the 52 Week Highs Screen - and this AIM-focused version of it.

I cover this screen every…

Unlock with Email

Unlock with Google

Already have an account?
Login here

iwright7

1st Sep '18

Ben,

It was Keith Ashworth Lord of Buffetology that once said If you want to produce different results to the market you need to invest differently to the market. Recognising the biases above and the reluctance for most people to buy near a 52 Week High is a great opportunity. The other point about 52 Wk High momentum stocks is that most will repeatedly drift in and out and in again of the Stocko 52 Wk Movers list, so there are repeated opportunities to spot them. Each morning I look at the 52 Wk High promotions in https://www.stockopedia.com/sc... and research those with High Stockranks, High QM, or those that take my fancy.

I personally look for both excellent company fundamentals and closeness to 52 Week High when I buy. If I look at my 30 holdings, 8 pass today's Stocko 52Wk High Momentum screen https://www.stockopedia.com/sc.... Most happen to be under researched AIM stocks that have drifted in and out of the Movers screen and most I have held for at least 6 months. For interest today's 8 passing holdings are:

Ferguson (LON:FERG)
£3IN (3i Infrastructure)
Murgitroyd (LON:MUR)
Bioquell (LON:BQE)
Abcam (LON:ABC)
Focusrite (LON:TUNE)
Elektron Technology (LON:EKT)
Victrex (LON:VCT)

AIM 100 has done really well over the last few years and I am pleased to say that by adopting/adapting the above momentum methodology I have managed to beat the AIM 100 Index. I could not have done this without the Stockopedia screening data so a big thanks again to you all. Ian

timarr

I've mentioned it before - probably because it'd been worrying me - but there's a chance that AIM tax breaks could be under threat, maybe as soon as this Autumn's budget. The current review into IHT by the Office of Tax Simplification is due to report prior to that and the general rhetoric around is that AIM IHT relief is squarely in its sights.

It may, of course, come to nothing, but if the IHT relief is scrapped then the froth in AIM share prices could be blown off. Anyway, on the grounds that I don't like anything that could be affected by political decision making (I think that's tautological, btw) I've sold down a lot of my more highly valued AIM stocks. The gains have been terrific, but at my time of life I'd really rather not be exposed to any more political risk than I have to. There's quite enough of that floating about anyway.

A few example snippets below, but it's all speculation until the OTS reports.

"The Association of Accounting Technicians (AAT) has called for shares issued by companies listed on the Alternative Investment Market (Aim) to lose their inheritance tax (IHT) exemption, arguing that it is ‘an anomaly that should be ended’."

https://www.moneyobserver.com/...

“Business Relief itself long predates Aim and was originally designed to enable privately-owned family run businesses to be passed on to the next generation without being hit by inheritance tax,” says Jason Hollands, the managing director of the wealth manager Tilney. “With the Government searching for new revenues to fund its increased NHS budget pledge and other demands for increased spending, there is some speculation brewing over whether the inheritance tax mitigation available through qualifying Aim shares could come under greater scrutiny and face tinkering.”

https://www.forbes.com/sites/d...

Darren Nicol

4th Sep '18

Thanks for a great article and comments, I am quite new to the investment game and have chosen firms based on their fundamentals and basically ones I like and I have a few questions on ISA's/ AIM stocks.

I have put these stocks into an ISA but notice that this may have been a pointless move as I have selected a.) US stocks and b.) AIM stocks, am I right in thinking that AIM stocks don't attract Capital gains tax and that US stocks aren't subject to the ISA tax wrappers....? I should have posted before starting but hay ho learn as you go :0) thanks again, Darren.

andrea34

An interesting article... though using the screen as-is immediately shows up some companies I'm not at all happy to invest in, such as Filtronic (LON:FTC) to name just one. Adding the criteria of Value Rank > 10 and Quality Rank > 50 gives me a set that I am rather more comfortable to start researching...

Rusty2

I don't think that is correct. AIM shares you do have to pay CGT if outside an ISA, think you maybe confusing that with Inheritance tax, some AIM shares are excluded. US shares you still have benefit of not paying UK dividend tax if held in an ISA and also avoiding CGT, you will still have to pay the US witholding tax.

donald pond

Filtronic (LON:FTC) is an interesting one. I'm generally a techno-fundamentalist (to use Nicholas Darvas's term) and like a company with good fundamentals that also looks to have a share price breaking out of a range. But I bought Filtronic (LON:FTC) last week purely on the strength of the chart. I think it was James DePorre in his book "Trade like a Shark" who said that he would sometimes buy a company simply on the strength of the chart, without doing any other research. Technically, FTC looks in that category to me.

icaldwell2309

5th Sep '18

If the person provides a tax identification number on Form W-9 to the payer a UK tax payer does not have to have the US withholding tax paid as I understand

Gromley

"techno-fundamentalist" - hmm not heard that term before - like it!

Filtronic (LON:FTC) - the fundamentals didn't look too bad either before the 60 odd percent rise. It had a Value Rank somewhere in the 70s when I bought and looking back to June it had a VR of 86. Now a lowly 31 - so you could argue that the value has been somewhat "outted".

There is though a bit of a story attached too as I outlined here.

Still only valued at £35m (from memory I think the "free float" is around 50%, so it's not too illiquid) so there is the potential for a bumpy ride in either direction.

Although I can understand andrea's aversion here (FTC would pass your value criteria andrea and QR at 38 is not a massive fail against your floor and there are 3 year old reasons why the QR is so low).

There could be a case to argue that this precisely the type of stock a filter like this is designed to capture; a reason (albeit somewhat speculative) for the 52w high but equally a reason (that a conservative investor would really want to take heed of) that people might want to take profits / cut long standing losses at this elevated price.

I came across Filtronic through a different route entirely and whilst it is an unusually speculative investment for me, it has certainly raised my interest in this screen.

Lawman

US WHT: Is it normally 30%, but reduced to 15% for UK holders with BEN W-9?

angelos

6th Sep '18

W9 is for US tax payers, ie if you are subject to a US tax return - you then do not get withheld tax as it is part of your US tax return. W8-Ben is the form for non-US persons, you will then be withheld at the tax treaty rate agreed between the US and your country of residence for dividends (usually between 15%-30% but this varies depending on the treaty).

ramonvasquez

7th Sep '18

Hello ... Thank you for the invitation ...
l used to be a Davosesquian some years ago , but in these days of excessive valuations l find myself unable to follow a New High strategy . However such does not detract from the principles involved .
Also , out of habit , l still watch the NH lists as well , if not more so , the New Low lists in today's atmosphere .
Good luck to everyone , and many thanks to Stockopedia . Ramon .

How to hunt for AIM stocks hitting new highs

Hunting for top performing small-caps

Unlock the rest of this article with a 14 day trial

About the Author

Ben Hobson

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...