The AIM market has proved “disappointing” for investors over the past 25 years, as a combination of company failures and lack of profits dampened returns, says Darius McDermott, managing director of FundCalibre.
Since its launch in June 1995, the AIM index has returned 18.1% with dividends reinvested, equating to 0.7% per year, while the FTSE All Share has returned 319% – or 6.1% per year.
McDermott says: “While the AIM index has a lot of stocks with great potential, it’s had more than its fair share of duds and many companies that have failed to make a profit. Careful stock-picking has been crucial to making decent returns over the past quarter of a century.
“In more recent years there’s been a general improvement in the quality of the companies listed on AIM. The rules have been better enforced, with Nomads becoming better at policing the market. This increase in quality has also led to better returns.”
While the AIM index has staged a better recovery during the Covid-19 crisis, down 5.3% year-to-date, compared with -13.3% for the main index, thanks in part to its higher levels of sector diversification and a greater weighting to structural growth, McDermott warns it can be a difficult market for investors to navigate.
He says: “While standards have improved, this is still a market I think better left to the professionals. It’s an exciting area of the market, but fraught with danger and in-depth research is imperative.
“A number of smaller companies fund managers have proved adept at delving into this market however and have made the growth stories work for investors.”
