However, most, although not all, shares listed on Aim are exempt from IHT if
held for more than two years.
Experts have hailed last week’s move as the birth of the IHT-free Isa.
To add to the appeal, stamp duty on Aim share transactions, usually 0.5pc,
will be scrapped from next April.
Patrick Connolly, a certified financial planner at Chase de Vere, said: “There
is the potential to make big gains but also the risk that you could suffer
major losses.”
Mr Connolly pointed out that the FTSE Aim All Share index had fallen by 76pc
since 2000, although largely because the index was loaded with technology
stocks.
It has also done badly recently because it is home to so many oil and gas
stocks, which have been hammered of late.
But the trick, as ever, is to pick out the gems – and who better to ask than
star fund managers who have consistently picked more winners than losers.
Paul Mumford is a guru of smaller company shares. He has run the hugely
successful Cavendish Opportunities fund for a quarter of a century
and more recently the Cavendish Aim fund.
He told Telegraph Money of two companies raising capital on Aim that
have caught his eye and which he will be backing. OMG, the Oxford
Metrics Group, announced last week that it was looking to raise £9m for
expansion. It makes an eclectic mix of technology products. Around 60 of its
hi-tech cameras were recently used in the filming of the new zombie movie World
War Z. But its cameras are also used by councils for taking pictures of
roads and street furniture in an annual audit, providing a steady flow of
income.
“The real reason I get quite excited about this one is that it has
developed intelligent, wearable camera technology,” said Mr Mumford. “It’s
the first camera in the world that’s been made like that and will be sold
exclusively through Amazon. Remember what happened when Amazon sold the
Kindle exclusively?”
He is also backing Keywords, a firm that translates computer games into
different languages and wants to float on Aim for £10m.
Among bombed-out oil and gas stocks, he likes Ithaca Energy and Faroe.
Alex Wright is one of the best-performing smaller company fund managers
of recent years. His Fidelity UK Smaller Companies fund became so popular
that it had to close to new business. He has also been given the Fidelity
Special Values investment trust to run.
His top Aim picks are Conygar, a “very cheap property company
trading at a significant discount to the value of its assets”, and Snoozebox,
which provides temporary hotel rooms with mobile units at big events, such
as the Jubilee celebrations, the Olympics and the British Grand Prix.
“A recent fundraising has improved the company’s financial position,
leaving it well positioned for growth,” said Mr Wright.
He also likes the oil and gas explorer Rockhopper, which is focused on
the Falklands, and Victoria Oil Gas. Of the latter, he said: “It
is a company going through a transformation that because of its size and
history, the wider market has not yet realised. It is currently building a
gas pipeline in an area of Cameroon that is experiencing regular power
outages. The cashflows the company can expect to receive if it executes this
project make the shares look extremely cheap.”
Of Rockhopper, he said: “For the long-term investor, the shares are
extremely cheap compared to the value of the oil that should start coming
out of the ground then. However, there is upside in the nearer term, as the
company will be drilling exploration wells in the area, and could well be
subject to a takeover bid given the cheap share price.”
Mark Slater, son of the legendary investor Jim Slater, is
another highly regarded fund manager who hunts for value in the smaller end
of the market. Among growth stocks, he backs Hutchison China MediTech, a
drugs and health care company, although because it is a Caymans-based
holding it does not qualify for inheritance tax protection.
His MFM Slater funds also hold stocks that pay decent income. Peat and compost
maker William Sinclair pays nearly 4pc. Not only is the company in
line for government compensation for not harvesting threatened peat bogs but
consolidation and cost cutting at its sites should help to grow profits “threefold”
in the next four years.
Mr Slater is also very keen on Motivcom, which has a yield of more than
4pc. It offers companies advice on employee loyalty and communications and
includes the Post Office, Royal Mail and Lloyds among its clients.
He also backs Alliance Pharma because it buys established health care
brands very cheaply to generate solid profits.
He said: “The problem with Aim is that the vast majority of companies
should be avoided. But the minute you screen for profits and yields you get
rid of most of the rubbish.”
Another option is to back a fund such as one of those mentioned, although
inheritance tax protection won’t apply. Brian Dennehy of Fundexpert.co.uk
likes the Liontrust UK Smaller Companies fund. “Yes, it has 61pc in Aim
stocks, but it is the 30pc in small UK tech companies which excites me –
much more interesting than Google and Apple. And the fund has a very tight
discipline in stock selection – no seat of the pants stock picking here.”
Investors should always be aware of the bigger risks they are taking. But as
Jim Slater famously said of his preference for market minnows: “Elephants
don’t run.”