While I still think the stock market is overdue a correction, I have to admit I’m impressed by its continued resilience. At times like these it’s best to make the trend our friend and run with the bulls – while at the same time avoiding complacency. Jumping off an uptrend too early can be a bigger mistake than getting hit by a correction, when we take a long-term view.
AIM going up
The uptrend is particularly positive in smaller company stocks and especially in the oft-derided AIM market. AIM has had a poor reputation, much of it justified. However it looks like things have changed for the better. AIM is now home to some excellent companies and the average quality continues to improve. As an investor it’s also worth remembering that nowadays AIM stocks are free of stamp duty, can be included in ISAs and most are free of inheritance tax once held for more than two years.
If we go back six years, around half of AIM’s total market value was composed of energy and mining stocks. Many of those companies crashed and burned as the natural resources bubble burst. These sectors now represent only 15 per cent of the AIM index and there’s a much better balance to the market’s composition as a result. We have also seen an ongoing shrinkage in the number of companies listed. This isn’t a sign of failure. Rather, the losers have been weeded out and investors are allocating their capital towards good quality businesses. There’s a lot less speculation than there used to be.
Over the last year AIM has risen 34 per cent, which is nicely ahead of the blue chip FTSE 100 return of 20 per cent. This outperformance has been driven by the larger stocks within the AIM universe, several of which would qualify for inclusion in the mid-cap FTSE 250 index if they were fully listed. Instead they reside in the AIM 100 index of largest companies on the junior market and are led by the likes of ASOS, Fevertree, boohoo.com and Burford Capital. This index is up 41 per cent over a year and shows no sign of slowing down.