The Alternative Investment Market (AIM for short) was set-up in 1995 as a sub-market of the London Stock Exchange.
AIM enables smaller companies to obtain a public listing for their shares at a fraction of the cost and with less regulation than on the main market.
Over 3,000 companies have been listed on AIM since it opened.
AIM can be a rich hunting ground for private UK investors looking for bargains, since shares listed on AIM are less well researched than on the main market, and many are too small for fund managers to bother with.
Beware though that the smaller size of AIM companies and the looser regulation means that they’re riskier than mainstream shares, too.
Also, many AIM shares are thinly traded, which means that investments in AIM companies can be illiquid [1].
AIM market ups and downs
The AIM market was originally aimed at UK companies, but today it plays host to hundreds of overseas companies, from Canadian oil explorers to Chinese tech startups.
These companies have undertaken a listing on AIM partly because of greater regulation elsewhere in the world, but also because a London-listing gives them exposure and potentially access to a large pool of international finance.
There’s also two-way traffic between the main market and the AIM market.
Smaller companies sometimes move down to AIM to cut costs, while some bigger AIM companies have moved up to full listing to improve the liquidity in their shares or to woo more institutional investors.
Who should invest in AIM shares?
Investing in companies on the Alternative Investment Market is best suited to experienced investors who understand the risks they are taking and who are well-versed in reading company reports, digging into news releases, and even contacting the companies directly.
Alternatively, there are some funds and investment trusts that focus on AIM shares, including several venture capital trusts. Their performance has been inconsistent (to put it mildly!) however.
Finally, you may have heard there’s a tax advantage to investing in AIM shares. This is no longer the case; changes in the UK tax regime [2] mean all capital gains are now taxed at a flat 18%, including AIM shares.
There may still be advantages for inheritance tax planning purposes, but this is a fast moving area and you should definitely seek professional advice before buying for that reason.
You can keep track of news and companies via the London Stock Exchange’s official Alternative Investment Market market [3] homepage.