AIM describes itself on owner London Stock Exchange's website as "the most successful growth market in the world", and this week the Alternative Investment Market's average market capitalisation hit a record high.
But during AIM's 23 years, some have questioned whether the exchange's claim of success is wholly deserved.
by Shaun Claydon, finance director, Distil While AIM is an attractive option for growth companies seeking capital, it is not necessarily appropriate for many companies at the smaller end of the market capitalisation spectrum
Since its launch in June 1995, AIM has listed a total of 3,786 new issues globally, raising a total of £107,275m for the companies it launched onto the exchange, including any secondary share issues.
Starting with just 10 companies with a total market value of £82m, in March 2018, the index comprises 800 listings with an average market cap £111m, new record high and an increase of 59% in five years.
Total returns
The market's growth in size is not in question, but the AIM index has not provided investors with a great deal of cheer over the years.
The small and mid-sized companies that list on AIM, choose the market due to its less stringent regulations and lower costs, but this has resulted over the years in several cases of fraud.
Moreover, research carried out for the Financial Times on AIM's 20th birthday in 2015 by Elroy Dimson and Paul Marsh of the London Business School, showed that 30% of the companies to have listed on AIM up to that point had lost shareholders at least 95% of their investment.
While that's little more than a two-in-three chance of picking a winner, it's a one-in-three chance you'll end up losing your investment.
Historically, the index has performed poorly, returning around -1.5% on an annualised basis over its 23 years.
Small cap indexes have traditionally performed much better, and this negative return is likely indicative of the less tightly regulated nature of the AIM market and the quality of companies that have listed there.
Domino's Pizza is one of the AIM successes, making it on to the main market - Wikimedia Commons
Successes
On the flipside, there have been some enormous success stories. Domino's Pizza and Big Yellow Group both started on AIM: Domino's has soared up to a £1.5bn market cap and a FTSE 250 listing, while Big Yellow's market cap is £1.35bn and is also listed on the main market's mid-cap index.
The Dimson and Marsh research shows that ASOS, however, is the best performing stock that launched and remains on AIM, with its stock climbing 16,113% since its debut in 2001.
Since the Dimson and Marsh research in 2015, returns on AIM have been much better as the equity bull run has gathered momentum and the quality of listings has continued to improve.
Yet, as AIM's average market cap strides up to its new £111m record, some are now also challenging the market's credentials, as it was established, of being the natural home for smaller listings
Size matters
Marty Lau, head of capital markets at Moore Stephens says: “The increasing trend in size of AIM companies signifies a positive sentiment to the market.
Marty Lau, head of capital markets at Moore Stephens
"This also means new issuers tend to be larger, more established companies. This is to the benefit of those companies listed on the market, but brings to light a key question – is this what AIM is all about?”
He continues: "The external view of the market improves on a snapshot basis with each market capitalisation but there is an impression that as these get larger, smaller companies shouldn’t be on AIM.
"If this trend is being pushed by regulators, there could be a risk that the lines between AIM and the main market become blurred, to AIM’s detriment.”
Shaun Claydon, finance director at AIM-listed Distil, agrees: “Whilst AIM continues to be an attractive option for growth companies seeking capital, it is not necessarily appropriate for many companies at the smaller end of the market capitalisation spectrum.
Gaining momentum
Moore Stephens has carried out its own research into AIM this year, surveying managers of the companies now listed on the market.
Nearly half - 44% - of those polled were positive about current market conditions and 53% were confident about the year ahead. A majority of 86% felt their companies were positioned to increase revenues over the next year.
It could, therefore, be a good time to invest in AIM companies. Confidence is relatively high and the FTSE AIM All Share index is up 17.5% since the beginning of 2017.
But remember the risks. Kathryn Gaw at IG Index spells it out: "Investing in small cap stocks can be a high-risk, high-reward environment.
"But for every small cap success story, there are dozens of failures, and when small companies fail, their investors can lose everything.
"Cover your risk by spreading your investments across a range of different stocks, rather than choosing just one or two, and alternative investments should always form only a small part of your portfolio."
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