Aim’s biggest groups prove its brightest stars

Last year was shocking in so many ways. Aside from Britons voting to leave the EU and the election of Donald Trump, it turns out that shares in the Alternative Investment Market performed almost as well as those of the UK’s biggest 100 stocks and a darn sight better than small and midsized companies on the main market.

This was only partly due to the well-documented recovery in shares in mining, oil and gas companies, according to London Business School academics Paul Marsh, Scott Evans and Elroy Dimson in their annual round-up of the Numis Smaller Companies Index.

Aim’s total returns — income and capital returns — over the year were 16.1 per cent. That is about three points behind the FTSE 100 (up 19 per cent last year) and markedly higher than the smallest 10 per cent of FTSE stocks that go into the NSCI. The comparison was starkest with medium-sized businesses, which were the top performers in 2015. 

All the UK’s main market indices as well as Aim had a shaky start to the year, and most fell sharply following the Brexit vote and sterling’s plunge. Only FTSE 100 stocks, with their heavy international exposure, were unscathed. 

But Aim shares and teeny-tinies in the NSCI ended the year more or less where they started. Returns were marginally below the FT All Share index, which is dominated by the UK’s top 100 stocks. In contrast, returns from Numis’ index of mid-cap stocks excluding investment companies were 8 per cent below returns from the FT-All Share. The NSCI index was 6 per cent worse than the All Share.

Why did Aim — the graveyard of many investors’ hopes in the past — perform so much better in 2016 than mid-caps and the NSCI? The easy answer would be it has large numbers of non-UK mining and hydrocarbon companies. 

Not quite right, though. When the LBS academics dug down, they found that while 48 per cent of Aim sales were not from the UK, some 47 per cent of the sales of mid-cap companies were also from overseas. 

And while it is true that Aim returns from resources were up 50-odd per cent, Aim’s resources sector lagged behind the equivalent group in the NSCI. 

When stripped of resources, Aim’s returns fell from 16 per cent to 13 per cent. Returns from a similarly pared down version of the NSCI fell from 12.8 per cent to 8.6 per cent. Mining and extractive industries buoyed the NSCI more than they did Aim. 

So Messrs Marsh, Dimson and Evans dug deeper and found that 21 out of 34 Aim sectors outgunned their NSCI counterparts.

That said, one of these sectors — Aim’s car and parts sector, which outperformed its NSCI equivalent by 60 per cent — comprises just two stocks. One of those companies, Transense Technologies, a £9m developer of carbon ceramic brakes for cars, rose 24 per cent on the back of a contract and a share consolidation. The lone company in the NSCI’s car and parts sector — Torotrak, a green technology group working on improving fuel consumption and emissions — fell 40 per cent. 

Similarly, Aim’s gas, water and utilities sector beat the NSCI by 58 per cent but this was largely because shares in one of the three companies in the sector — Fulcrum Utility Services — rose from 28.75p to 50p. Shares in Dee Valley — the Welsh water company that is the sole constituent in the NSCI’s gas and utility sector — were up just under a third. 

Disappointingly for those who view Aim as a seedbed for start-ups, the brightest stars in its firmament last year were its biggest constituents: online retailers Asos and Boohoo.com, and GW Pharmaceuticals, which is working on marijuana-based treatments for epilepsy and multiple sclerosis and has now moved to Nasdaq. This triumvirate contributed 4.9 per cent of Aim’s performance last year. 

Asos shares are up from 3,500p to 5,238p over the year, valuing the group at £4.49bn. That is three times the size of the biggest company in the NSCI and would put Asos in the FTSE 100 if it were listed on the main market.

Two things emerge from LBS’s research. The median market capitalisation of Aim’s 1,000 or so stocks is a weeny £20m, nonetheless it is not quite the small-cap index it is billed. Nor can it be written off as a dumping ground for two-bit resources stocks.

kate.burgess@ft.com