SIMON BAIN
Shares in Scottish companies listed on the Alternative Investment Market (AIM) fell by 13.8per cent during 2014, according to an analysis this week.
This is the first full tax year in which AIM shares are able to be held in Isas, and the figures came as a timely reminder, ahead of the forthcoming round of Isa promotion, of the risks of adopting a more adventurous investment strategy.
The AIM Allshare fell by 17.2per cent over the year while the 100 biggest AIM stocks fell by even more, 20.4 per cent.
By comparison, the FTSE all-share was down only 1.88per cent in 2014 while for the medium-sized stocks represented by the FTSE-250 there was actually a rise of 1.16 per cent.
The extremes of AIM investing are illustrated by the performance of Scottish stocks, according to the analysis by advisers BDO. The biggest, Smart Metering, posted a 30 per cent rise during the year. However the second largest, IT cloud specialist Iomart, crashed by 38 per cent.
The third biggest Faroe Petroleum was hit by the oil price slump, falling 47 per cent. The year's biggest risers were miner Scotgold (up 157 per cent) property group Caledonian Trust (up 86 per cent) and Goals Soccer Centres (up 38 per cent, while the turkeys were online dating business Cupid (down 71 per cent), office provider Spacesandpeople (down 65 per cent, and Lansdowne Oil & Gas (down 60 per cent).
However that excludes new arrival on AIM Arria NLG, an Aberdeen University spin-out but registered in London. Floated in December 2013 at 160p it rocketed to 282p, opened 2014 at 139p, and finished the year at 34p.
Neil McGill, BDO's corporate finance director, said bravely: "In a difficult marketplace, some of Scotland's AIM listed companies have outperformed their counterparts in the rest of the UK."
At the end of the last Isa season, Barclays Stockbrokers reported that 25 per cent of clients questioned had used their Isa allowance to invest in the AIM market, while a further 41 per cent said they were thinking about investing in AIM shares in the future.
That followed the lifting by the Treasury in August 2013 of the restriction preventing the shares of almost 1100 AIM-listed companies from being included in Isas.
Barclays noted last March that "AIM-listed shares have shown an increase of 25 per cent in value since the restriction was lifted, highlighting the wider benefits to investors of being able to invest tax efficiently in this market".
Barclays'analysis revealed that companies from the oil and gas sector were most popular with clients,with 38 per cent of purchases in the top ten most popular stocks.
BDO pointed out this week that the oil price crash had "impacted disproportionately on the market cap of Scottish AIM-listed firms".
Hargreaves Lansdown reported in August that in the first 12 months of the new regime, AIM shares had returned 18.9 per cent, outperforming the 2.1 per cent of the FTSE All-Share.
Over five years, it noted that FTSE had returned 122per cent against the 101 per cent of the all-share.
Hargreaves warned: "The index doesn't paint the full picture and the AIM market is volatile at the extremes. Investors could see big swings in the value of their shares. However, a few companies can go on to significantly outperform the market. It is this potential for growth that makes AIM shares attractive to investors."
Once certain AIM shares have been held for a two-year period they qualify for Business Property Relief and potentially up to a 100per cent exemption from inheritance tax.
Jason Hollands, managing director at Tilney Bestinvest, said: "AIM shares being less liquid and less researched will naturally be appealing to more financially active and sophisticated investors. And while the IHT mitigation features may appeal to some, for many the additional risks don't."
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