Derek Pain: Aim's future brightens as exodus slows

No Pain, No Gain

The outlook for Aim is suddenly looking much brighter. Expected tax changes and firm evidence that the exodus of constituents has fallen dramatically indicate that the Stock Exchange junior share market is in a far healthier state than it has been for some time.

Mind you, Aim, aka the Alternative Investment Market, has been in dire straits. It was hit particularly hard in the first years of the banking crisis as membership declined and share trading in many instances came to a virtual halt. With companies possibly paying up to £600,000 a year for membership and associated facilities and with little likelihood of using shares for capital raising or as takeover ammunition, it is not surprising that many decided to quit the share trading platform. On top of voluntary delistings there was a stampede of forced resignations as businesses went bust or simply could not afford to retain membership. Occasional takeover action also eroded the ranks.

A few years ago when I last dwelt upon the junior market it was so battered and bruised that I – and others – questioned whether it had any future at all. In a couple of years departures had approached 500 and in those days the fringe Plus market – now called ISDX – seemed to be mounting fierce competition that ultimately proved to be counter-productive and ISDX itself ran into trouble and had to be rescued.

Even so, a measure of Aim's decline is illustrated by its army of constituents. At its peak, before small caps were devastated by the financial debacle, Aim had almost 1,700 members. Today, even though the atmosphere is more promising than it has been for years, its ranks are below 1,100. But according to the latest study the exodus has slowed and only 14 departed in the first three months of this year – the lowest quarterly figure since the financial crisis gripped world economies when many investors took the view that second-line markets, such as Aim, were just too risky to contemplate.

Laurence Sacker, a partner in the accountancy firm, UHY Hacker Young, compiler of the statistics, observed: "Aim has certainly come through the worst of the financial crisis."

The junior platform should benefit from the abolition of stamp duty when its shares are traded which comes into force next April. Richard Gill of the t1ps.com website estimates the average small investor trades around six times a year with outlays of £2,000 a time. Individual annual saving would, therefore, be around £58. Allowing Aim shares into Isas is on the Westminster agenda but the Government seems to be taking an awfully long time implementing such a proposition.

Still, perhaps Aim, with recruits cropping up more frequently and departures falling, could with the signalled tax changes be set for a new lease of life. Investors, the real casualties of the turmoil of the past few years, must hope so. It is their interest that is vital for the junior market, started in 1995 when the Stock Exchange discontinued its matched-bargain facility. Not only was Aim born (replacing such markets as the USM) but ISDX (then called Ofex) also appeared. The idea was to cater for small caps – which by definition are more risky – by offering less-strenuous and allegedly rather cheaper conditions of membership.

In these days of globalisation, other small share markets have materialised, such as GXG, and they could also benefit from the rather more exuberant atmosphere now engulfing Aim and, perhaps to a lesser extent, ISDX. Danish-controlled GXG is expanding quickly and last year totted up more than £200m worth of share trades. It embraces three tiers, with the lower section fairly easy on regulation. The second is more closely controlled with the top division even more tightly regulated. It now has more than 70 companies traded on its three divisions.

It is not difficult to come across upbeat small-cap statements from fund managers. The Franklin UK Smaller Companies Fund is a case in point. Co-managers Paul Spencer and Richard Bullas say demand for small caps "continues as investor appetite for risk has increased in line with growing confidence". And they think little'uns could out-perform their bigger brethren.