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 the rest of this Article in 15 seconds

or Unlock with your email

Already have an account?
Login here