While equity markets have fallen in relative unison internationally since October, some have suffered more than others. Among the UK markets, the heaviest faller has been the AIM, the Alternative Investment Market that is home to ‘microcap’ stocks. These companies have an average market capitalisation of ‘just’ around £100 million.
The demands placed upon companies listing on the AIM exchange are less onerous, and therefore less expensive, than listing on the London Stock Exchange ‘proper’. This makes it a more realistic public debut for smaller companies and the AIM market does include some well-known brands such as ecommerce leaders ASOS and Boohoo.com and in vogue mixers manufacturer Fevertree Drinks.
However, the smaller size of the companies listed on the AIM exchange inevitably means their shares are less liquid and pricing more volatile. This makes them a riskier proposition than larger companies on the London Stock Exchange proper. Investors can make far bigger gains than would be expected when investing in larger companies but can also suffer much bigger losses. So when markets lose their appetite for risk, AIM stocks tend to suffer most.
And this has turned out to be the case over the past few months. ‘Red October’ saw the FTSE All-Share index slide 5.1%. The AIM All-Share dropped over 11%. Since the beginning of September the AIM is down almost 19%.
Over the last few years the AIM and AIM-listed companies have proven a good investment. The average company gain over the past three years has been 32.8% compared to 24.6% for the FTSE 100, the LSE’s 100 biggest companies by market capitalisation. Some fund managers believe the recent AIM sell-off has been exaggerated and a symptom of short term thinking. They are using the opportunity to buy AIM shares that have plummeted in value and they believe now represent a bargain on the basis of their fundamentals and long term prospect.
Here’s 5 AIM shares that have seen their value drop significantly in recent months and are worth a look for those investing online and open to higher risk/higher reward opportunities:
Forbidden Technologies: a software company that has been listed on AIM for 20 years without ever really performing well. However, under new chief executive Ian McDonough, sales are improving rapidly and the company’s share price hit an historical high of 7.6p in September. It’s since dropped 24.3%.
Gervais Williams, co-manager of the £1.3bn Miton Multi-Cap Income fund that owns 20% of Forbidden Technologies has described the market sell-off of the company as ‘madness’.
Burford Capital: this company provides companies with loans to fund their fight of legal cases. Its shares have dropped by over 30% since the beginning of October. Richard Hallett of the Marlborough UK Multi-Cap Growth fund is a fan of the company and believes Brexit could actually boost it with regulatory confusion meaning more companies across Europe sue each other.
Belvoir Lettings: the UK’s largest franchised real estate agency, Belvoir has 61,000 properties under management that ensure reliable and recurring revenues. Property market nerves have seen the company’s shares slide 18% since September which means they now yield 8%.