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The Alternative Investment Market (AIM) celebrates its 30th anniversary in June and like most of us at that age, it appears nervous about turning 30. Its 20s were certainly a struggle, with Brexit then Covid and all followed by last year’s reduction in inheritance tax (IHT) relief.
These events led to a significant pull back in recent returns, resulting in a rather underwhelming less than 1% annualised total returns since it launched in June 1995. Quite the contrast compared to what premium smaller companies have historically offered long term investors1.
From where we stand now, AIM valuations are unquestionably appealing. We suggest some of the most attractive small cap valuations internationally. It’s therefore a consideration of the risks and opportunities ahead.
10 years of FTSE AIM All Share
Source: Morningstar as at 31 May 2025.
Small Cap valuations
Source: Bloomberg as at 9 June 2025. Average P/E is from 1 January 2010. The price-to-earnings (P/E) ratio measures a company's share price relative to its earnings per share.
The AIM market began with ten companies and a market capitalisation of £82 million. Today, as it approaches its milestone birthday, it includes around 600 companies with a combined market capitalisation of over £60 billion. At first sight, a great success! However, its market capitalisation has fallen since it reached over £140 billion in 2021. Furthermore, its number of constituents has been declining since peaking at over 1,600 in 20072. All raising questions about the future of AIM.
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The AIM market began with ten companies and a market capitalisation of £82 million. Today, as it approaches its milestone birthday, it includes around 600 companies with a combined market capitalisation of over £60 billion.
Going forward
At a market level, the challenge is the need to attract investment flows. Retail investors, especially the High Net Worth, have been the traditional investors. However, the government’s partial removal of IHT relief is a major headwind, resulting in investment advisers needing to revisit the best course of action for tax-efficient estate planning. So, where will investment flows come from? Retail investors will continue to be important, but we would point to UK pension schemes as coming more to the fore. The recent Mansion House Accord, saw 17 of the UK's largest workplace pension providers agreeing to invest at least 10% of their defined contribution default funds into private markets, including AIM, by 20303. Additionally, the government continues to investigate ways to support the UK stock market. Changes like this are interesting in supporting future valuations. After that, it’s over to the best companies to thrive and create value for investors.
This all gets to the crux of it. The reason investors should be excited about the future of the AIM market is quite simple, it’s the companies. Stepping back to basics, the AIM market encourages early-stage businesses to list in the UK, through a reduced governance burden and costs associated with a full, main market listing. This means there are some unique, early-stage companies to be found; ones that are growing quickly and creating value for investors. Unfortunately, on the other side of the coin, there are also some lower quality companies to be found, and it is woefully under covered by the sell-side. Combined, this is what makes the AIM market an active manager’s dream!
To bring this to life, a couple of companies we would highlight as having made a success of their AIM listing are:
- Alpha Group International, a provider of foreign exchange risk management and alternative banking solutions, this is a company executing well and growing internationally. It listed on AIM in 2017 at 196 pence, with a market capitalisation of £64 million. It has seen its share price grow by over 15x to a market capitalisation of £1.3 billion4, over a period that has also included a move to the main market and subsequently the FTSE250 index in May 2024.
- Boku, a fintech business which provides alternative payment facilities in mobile payments and digital wallets for some of the world’s largest digital companies such as Amazon, Apple, Netflix and Meta listed on AIM in 2017 with a market capitalisation of £125 million. The market capitalisation is over £500 million today4 and the listing on AIM has provided the capital for the business to become a world leader in alternative payments. More people today, globally, pay with a local payment method such as a digital wallet than with a Visa or Mastercard.
As we look ahead, yes, there are challenges. However, we believe the exciting company opportunities outweigh them, making AIM stocks a great addition to a diversified UK small cap portfolio.
Happy Birthday to the AIM!
Sources
1Source: The NSCI as at 15 January 2025.
2Source: Peel Hunt as at 17 September 2024.
3Source: GOV.UK as at 13 May 2025.
4Source: Bloomberg as at 6 June 2025.
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