The Alternative Investment Market (AIM) is popular with investors looking for fast-growing companies that have the potential to deliver exceptional returns. But the challenge is that there are literally hundreds of stocks to choose from, many of which are very risky and highly speculative.
In this article we’re going to look at why AIM is so popular and how you can use the Stockopedia Screener to find the market’s highest quality shares.
AIM was launched in its present form in 1995. Unlike the Main Market, it has a light-touch regulatory regime that’s designed to be less of a burden on smaller, growth-oriented companies.
Some of these stocks go on to re-rate many times over, but many others are unproven, unprofitable and rely on appealing stories to attract investors. Ultimately, hype and expectation often gives way to disappointment and losses.
Indeed, despite the market being set up for young companies, many are too small, too unfamiliar or have too little liquidity to attract mainstream institutional funds. As a result, they don’t get much in the way of analyst coverage either.
But while this is undoubtedly a big risk with AIM, it also gives regular investors an advantage. For those prepared to do their homework, there can be an edge in getting to know these under-researched companies well.
Over time, the number of stocks quoted on AIM has grown a great deal, peaking at over 1,700 in 2007. But in the aftermath of the financial crisis there was a shift to quality. Weaker companies fell by the wayside and overall numbers fell below 1,000. As a result, the quality bar improved and funds flowed into the market, sending its value higher.
Today, AIM is home to a number of exciting businesses. A few have grown so large that they wouldn’t be out of place in the FTSE 100. But it’s still the vast array of smaller, innovative growth stocks that prove to be AIM’s real appeal.
Improving quality and major tax benefits
It isn’t just the large numbers of growth companies that makes AIM attractive. It also has some important tax benefits.
For a start, purchases of AIM shares are exempt from stamp duty taxes. This saves paying the 0.5% tax that’s triggered when buying shares worth more than £1,000 on the Main Market.
Meanwhile AIM enjoys all the same benefits as Main Market shares when…
