The funds investing in the AIM market

If you want exposure to UK small companies, then the Alternative Investment Market (AIM) is a very good place to start. This sub-market of the London Stock Exchange was launched in 1995 to help growing firms seek capital to fund their development.

But what do you need to know about AIM – and which investment funds focusing on such companies are worth considering?

Overview

When the Alternative Investment Market made its debut almost 30 years ago, it consisted of 10 companies valued at a combined £82m, according to the London Stock Exchange. Today, the market has more than 850 companies that boast a combined market capitalisation of almost £135bn.

It has become a favoured destination for many entrepreneurial businesses that are looking for both finance and advice to help them grow. And this also provides plenty of opportunities for investors to buy into fast-developing, innovative companies that could eventually become household names.

Pros and cons

The main benefit of investing in AIM-quoted companies is getting exposure to future success stories at an early stage in their development. This part of the stock market tends to be under-researched, especially in comparison to the large caps, which means analysts may miss exciting stories.

However, there are potential downsides. Many of these companies are at an early stage in their development so there is a chance they could end up failing.

Fund suggestions

So, which investment funds embrace the AIM market? We have picked out five portfolios that can give you access.

IFSL Marlborough UK Micro-Cap Growth

This fund is one of the largest and most successful funds in the IA UK Smaller Companies sector and has been delivering great returns for the best part of two decades. Its co-managers, Guy Feld and Eustace Santa Barbara, primarily focus on companies with market capitalisations of up to £500m, although there are plenty with less than £150m.

The fund is also very diversified and rarely has more than 2.5% of assets invested in any one particular company. Currently, there are more than 180 holdings*. These include Horizonte Minerals, a member of the FTSE AIM 100 Index, and a leading nickel company that’s developing projects in Brazil*.

Liontrust UK Micro Cap

The next fund on our list is Liontrust UK Micro Cap, which searches for companies boasting durable competitive advantages over their rivals. This portfolio is run by a team of five managers that have been using a proven investment process to great effect for a number of years. Their focus includes an insistence that any companies considered for inclusion must have a minimum 3% equity ownership by senior management.

The fund’s 10 largest holdings today include Kitwave Group, a delivered wholesale business with depots across the UK**. It specialises in impulse products, alcohol, and frozen, chilled and fresh foods. 87% of the fund’s assets are currently invested in FTSE AIM companies**.

Unicorn UK Smaller Companies

Another contender is this high conviction fund that currently has around 40 holdings. Its largest positions include Somero Enterprises, which makes equipment that’s used to place and screed concrete in buildings**. The company is also on the FTSE AIM 100 Index.

The Unicorn fund, which is managed by Simon Moon, focuses on fundamentals and aims to make long-term investments, while avoiding lower quality cash-burning businesses. We like its focus on understanding companies and believe the fact it’s quite concentrated allows it to capture the performance of its best ideas.

TM Tellworth UK Smaller Companies

Tellworth is a specialist UK equity boutique and its smaller companies fund is run by the very experienced Paul Marriage, John Warren and James Gerlis. The fund, which was launched less than five years ago, is a true smaller companies portfolio that doesn’t invest in either micro-cap or mid-cap names.

We like its solid, flexible process and believe this gives the managers enough freedom to focus on the job of picking stocks. According to the most recent factsheet, the fund has 48 holdings**. One of the largest is in IG Design, which is a member of the FTSE AIM All-Share Index**.

TB Amati UK Listed Smaller Companies

This is an unconstrained portfolio that seeks structural UK growth businesses that can grow faster than the economy. It’s also managed by a highly experienced team of small cap specialists. The portfolio currently has just under 70 holdings*.

Its 10 largest positions include Accesso Technology, which provides ticketing, point of sale and virtual queuing solutions**. This company is on the FTSE AIM UK 50 Index.

*Source: fund factsheet, 31 January 2023
**Source: fund factsheet, 28 February 2023