The AIM market turns 30 this year, prompting questions about its future. Can it defy sceptics and remain a dynamic hub for investors? Eustace Santa Barbara(pictured), co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth funds, explains why he – and other specialist UK smaller companies investors – believe its agility and innovation mean that it can.
Albert Einstein once remarked that anyone hoping to make a significant contribution to science should do so before the age of 30[1]. Beyond that milestone, he suggested, the ability to break new ground would only diminish.
Of course, this was easy for Einstein to say. He published his epoch-defining papers on the theory of special relativity and the relationship between mass and energy – E=mc2 – when he was 26.
Nonetheless, he perhaps had a point – not just in relation to science but with regard to all fields of endeavour. Michaelangelo sculpted David while still in his 20s. Beethoven’s Symphony Nº. 1 premiered when the maestro was 29. Alexander the Great racked up most of his conquests before he hit the big three-oh.
All this seems to imply we have seen the best of AIM, London’s “junior” stock market. Formerly known as the Alternative Investment Market, it was launched in 1995 and is due to turn 30 in June this year.
Yet is it really inevitable that the glory days have already been and gone? Or might AIM prove capable of surprising the doubters and doom-mongers as it heads into its fourth decade?
Why has AIM suffered recently?
Some might argue AIM peaked even earlier than Einstein. In 2007, aged just 12, it was home to nearly 1,700 businesses from around the world – no mean feat, given that it began life with only 10 companies.
Last year, by stark contrast, the number of listings slipped below 700 for the first time since 2001. This added fuel to persistent claims that the market could be on the brink – or even in the midst – of its death throes.
There are several reasons for the recent decline. Foremost among them is that the majority of AIM’s constituents are UK-based smaller companies, which have fallen out of favour with investors over the course of several extremely challenging years.
Many were dealt a harsh blow by Brexit. They suffered again when COVID-19 wreaked havoc on economies worldwide. Inflation, rising interest rates, continued political uncertainty and a frenzy of negative speculation surrounding the Autumn Budget whipped up yet more headwinds.
In addition, crucially, many investors know very little about these businesses in the first instance. This is because smaller companies are consistently under-researched and therefore under-appreciated. The propagation of this “blind spot” further undermines AIM’s appeal.
The value of digging deeper
To an extent, the above represents the view from afar. The view from within – that is, the view of specialist fund managers who deal directly with UK smaller companies on a daily basis – is rather different.
The founding purpose of AIM was to help supply capital to dynamic businesses with the potential to deliver long-term growth. This is still the market’s principal function today, which is why investment decisions should always be informed, above all, by a firm grasp of a company’s fundamentals.
In our experience, regular engagement is the most effective way of building the necessary picture. Face-to-face discussions with senior executives allow us to dig deeper into a business’s performance, policies, practices and prospects.
This is how we establish whether a company that has endured Brexit, the pandemic and other shocks is genuinely resilient and fit for the future. It is how we see beyond balance sheets and the comparatively limited insights available from research providers. It is how we identify the kind of opportunities that much of the investment community routinely ignores.
AIM has long fought against a “Wild West” reputation, and it has undoubtedly served up its fair share of corporate calamities. Yet its numerous notable success stories – among them the likes of Jet2.com, Gamma and GlobalData – cannot be ignored. As ever in investment circles, it is a matter of knowing where to look and what to look for.
AIM’s place in a world of fierce competition and continued innovation
Since 1995, according to a study commissioned by the London Stock Exchange, AIM has supported more than 4,000 businesses in raising around £135 billion. In 2023 alone it was responsible for £68 billion in gross added value for the UK economy[2].
Such achievements are not to be sneezed at. They might even be sufficient to qualify as a significant contribution by Einstein’s lofty standards. Going forward, though, will these and other headline figures ever be topped?
Granted, AIM might never again boast 1,700 listings. Yet the investment attractions of many of its companies are unlikely to fade in an era when competition at the cutting edge is extraordinarily fierce and positive disruption repeatedly comes from smaller businesses defined by agility and innovation.
As for that 30-year rule of thumb… Well, it might be worth remembering that Michaelangelo was in his 30s when he painted the Sistine Chapel, that Beethoven finished his ninth and final symphony at the age of 53 and that Alexander – at least according to Plutarch’s Moralia – still believed he had plenty of work ahead of him at 33.
In fact, even Einstein himself was far from finished at 30. He was well into his 40s when he started developing the foundations of quantum mechanics. Maybe he did produce his very finest work when he was 26, but in the end – as the great man would surely have conceded – it is all relative.
Eustace Santa Barbara is co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth funds.
[1] See, for example, Jones, B, Reedy, E, and Weinberg, B: Age and Scientific Genius, 2014 – https://www.kellogg.northwestern.edu/faculty/jones-ben/htm/age%20and%20scientific%20genius.pdf.
[2] See, for example, Grant Thornton: “Report: the economic impact of AIM companies”, September 16 2024 – https://www.grantthornton.co.uk/insights/report-the-economic-impact-of-aim-companies/.
