For investment professionals only. AIM portfolio service. Matt Hoggarth CFA Head of Research. 1 November Professional investment partners

Transcription

1 For investment professionals only AIM portfolio service Matt Hoggarth CFA Head of Research 1 November 2017 Professional investment partners

2 Contents Inheritance tax (IHT) Alternative Investment Market (AIM) Building an AIM portfolio Analysing the simulated AIM portfolio Thesis AIM portfolio service 2

3 Inheritance tax (IHT) IHT overview Inheritance tax (IHT) may be payable on the estate of someone after they die No IHT is payable on estates valued below the threshold of 325,000. This threshold has been static since 2009 Where an estate is valued at more than 325,000 ( 650,000 for couples), IHT at a rate of 40% is payable on the estate value above this threshold The main residence nil rate band can reduce the IHT liability on the family home Spousal transfer, gifts and charity donations all help to reduce IHT, but there may still be a substantial IHT charge Source: HMRC 3

4 IHT IHT receipts reaching a record high 5.0bn 4.45bn 4.0bn 3.0bn 2.77bn 2.32bn 2.63bn 2.83bn 2.96bn 3.30bn 3.66bn 2.0bn 1.0bn 0.0bn Source: HMRC, IHT receipts arising from transfers taxable at death 4

5 IHT Business Relief on AIM investment Business Relief reduces the value of a business or its assets when working out how much IHT has to be paid Investments in certain Alternative Investment Market (AIM) companies get 100% Business Relief because they are categorised as shares in an unlisted company To qualify, shares must be admitted to AIM but not listed on any other exchange Shares must be held for at least two years Shares can be sold and the proceeds reinvested into other qualifying shares without the two-year clock being reset Source: HMRC 5

6 Alternative Investment Market (AIM) AIM overview AIM helps to raise capital to support the growth of ambitious companies Launched in 1995 Over 3,600 companies have floated on AIM Over 100bn raised since launch Average of 80 new issues pa Over 40k trades per day Daily trade value of c 240m AIM companies include ASOS, Fever-Tree, Mulberry, Young s Brewery, Hotel Chocolat AIM shares can be held in ISAs No stamp duty applied to purchase of AIM shares Source: London Stock Exchange, HMRC, as at August

7 AIM AIM fosters economic contributors Distribution of companies by equity market value Over 1000 Market value range m Source: London Stock Exchange, as at July

8 AIM AIM exceptions to Business Relief To qualify for Business Relief, a company s business must not be wholly or mainly: Dealing in securities, stocks and shares, dealing in land or buildings, making or holding investments (unless that of a market maker or discount house) Business not carried on for gain Business subject to contract for sale Business being wound up Source: HMRC 8

9 AIM Common presumptions on the risks of AIM are only partially justified AIM is a volatile and high risk market o Yes, but much volatility has been driven by IPOs and certain sectors AIM listed firms are too small for all but the most adventurous investors o Over a quarter of the firms listed on AIM have a market capitalisation of over 50m AIM is a difficult place to invest o AIM is less well covered by analysts so offers plenty of opportunities for those prepared to do the work 9

10 AIM Liquidity Secondary market summary - since launch Average Daily Value ( m) Average Daily Trades Average daily value and number of trades are increasing Varies with market conditions and company specific factors A bull market is usually more liquid than a bear market Some specific industries may be harder to sell at certain times Source: London Stock Exchange 10

11 Building an AIM portfolio Screening process Focus our attention on top 250 companies within FTSE AIM All-Share Exclude stocks with a dual listing Remove market sectors which conflict with HMRC Business Relief qualification criteria Review financial data to identify large cash balances or other anomalies Run TESS and rank stocks 11

12 Building an AIM portfolio Thesis equity stock screen (TESS) Assesses fundamental data o o o o o o Profitability Yield Growth Margins Assets Momentum Real historical numbers, not forecasts Dispassionate assessment of universe Starting point for further analysis 12

13 Building an AIM portfolio Filter AIM market to remove stocks ineligible for Business Relief Remove companies that are unlikely to qualify for IHT relief Apply the Thesis Equity Stock Screen (TESS) Dispassionate assessment of company fundamentals. Proprietary methodology developed in conjunction with academics at a leading business school Further analysis of company fundamentals UK Equity Committee, formed of expert analysts and investment managers, reviews the business model and prospects of each shortlisted company Liquidity assessment and dealing strategies Aim to exclude companies that are likely to be too illiquid to trade. Our dealing team works with different brokers and trade venues to gain best execution 13

14 Building an AIM portfolio Stock selection 980 stocks listed on AIM We took the FTSE AIM All-Share Index with 809 constituents Excluded nine sub-sectors (185 stocks) Removed 52 stocks that were dual listed Applied TESS to the top 250 plus financials Took the top scoring quintile Final selection by UK Equity Committee Figures relate to 30/9/2017 TESS screen. 14

15 Building an AIM portfolio Further refinement of top quintile Red flags (next slide) RNS announcements Shares out/float (free float % of share outstanding) Top holders % held by insiders Broker rankings in trade volume (Bloomberg function run trade report) Market depth (although likely to be broker executed trades) 15

16 Building an AIM portfolio Red flags Dual listing (unless HMRC grants unquoted status ) Sale or leaseback of headquarters Collective investments schemes/property investments (investment trusts/reits) Exploration assets that aren t physically extracting deemed property asset Joint venture income Large cash balances Non-trading operations Drug discovery companies Property letting business, serviced offices, property dealing Large amounts of property assets not currently used by the business 16

17 Analysing the simulated AIM portfolio Portfolio construction After initial filtering, TESS applied to approximately 250 AIM stocks TESS screen repeated quarterly, using data since 2012 Equal weighted portfolio of top-scoring quintile (~50 stocks) A portfolio created from the top-scoring quintile would have outperformed (see performance data) versus: o o o All 250 stocks The other 200 stocks The FTSE AIM-All Share Index 17

18 Total Cumulative Return (%) Analysing the simulated AIM portfolio Performance. 01/10/ /09/ /10/ /09/ /10/ /09/ /10/ /09/ /10/ /09/2013 TESS AIM 31.96% 18.11% 8.49% 5.24% 45.38% FTSE AIM All-Share 24.68% 16.55% -1.36% -4.20% 13.25% TESS AIM FTSE AIM All-Share AIM 250 AIM 250 Bottom 4 Quintiles 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Date Source: Bloomberg, total return before fees. Simulated performance 01/10/12-30/09/17 Past performance is not a reliable indicator of future performance. 18

19 Total Return (%) Analysing the simulated AIM portfolio Period analysis TESS AIM vs FTSE AIM All-Share quarterly performance Period Analysis Winning Losing Periods with positively correlated returns Periods with negatively correlated returns Number Percentage Avg Difference Std Dev Difference Max Sequence Avg Sequence Total Return Comparison TESS AIM FTSE AIM All-Share 20% 15% 10% 5% 0% -5% -10% Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Date Graph Source: Bloomberg, total return before fees. Simulated performance 01/10/12-30/09/17 Past performance is not a reliable indicator of future performance. 19

20 Analysing the simulated AIM portfolio Risk and return analytics Portfolio Statistics Return TESS AIM AIM Month 6 months Year to Date Since Inception FTSE AIM All-Share TESS AIM AIM 250 FTSE AIM All-Share TESS AIM AIM 250 FTSE AIM All-Share TESS AIM AIM 250 Total Return Maximum Return Minimum Return Mean Return (Annualized) Mean Excess Return (Annualized) FTSE AIM All-Share Risk Standard Deviation (Annualized) Downside Risk (Annualized) Skewness VaR 95% (ex-post) Tracking Error (Annualized) Risk/Return Sharpe Ratio Jensen Alpha Information Ratio Treynor Measure Source: Bloomberg, total return before fees. Simulated performance 01/10/12-30/09/17 Past performance is not a reliable indicator of future performance. 20

21 Analysing the simulated AIM portfolio Attribution Average weight difference TESS AIM vs AIM 250 TESS AIM vs FTSE AIM All-Share -0.56% -0.24% Utilities 0.04% 0.98% Telecommunications -0.11% 8.28% Technology -9.35% -7.04% Oil & Gas 10.88% 19.93% Industrials -3.76% -3.06% Health Care -9.05% 1.00% Financials -4.06% -1.28% Consumer Services 0.90% 1.93% Consumer Goods -4.43% -1.01% Basic Materials -15% -10% -5% 0% 5% 10% 15% 20% 25% Source: Bloomberg, 01/10/12-30/09/17 21

22 Analysing the simulated AIM portfolio Attribution Attribution effects Utilities Telecommunications Technology Oil & Gas Industrials Health Care Financials Consumer Services Consumer Goods Basic Materials -20% -10% 0% 10% 20% 30% 40% Currency Selection Allocation Total Attribution Source: Bloomberg, total return before fees. Simulated performance 01/10/12-30/09/17. Past performance is not a reliable indicator of future performance. 22

23 Analysing the simulated AIM portfolio Average weights Sector TESS AIM FTSE AIM All-Share Basic Materials 5.75% 6.97% Consumer Goods 10.24% 11.55% Consumer Services 13.52% 18.64% Financials 5.74% 13.37% Health Care 13.71% 15.03% Industrials 36.71% 14.71% Oil & Gas 1.64% 5.76% Technology 12.69% 12.08% Telecommunications 0.00% 1.52% Utilities 0.00% 0.36% Source: Bloomberg, Date as at 30/09/17 23

24 Sector Weight (%) Analysing the simulated AIM portfolio 100% Portfolio holdings by ICB super sector 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Construction & Materials Insurance Retail Utilities Chemicals Media Financial Services Personal & Household Goods Basic Resources Food & Beverage Telecommunications Health Care Travel & Leisure Industrial Goods & Services Oil & Gas Technology Date Source: Bloomberg, 01/10/12-30/09/17 24

25 Analysing the simulated AIM portfolio Top quintile for 8 or more quarters Central Asia Metal Zytronic PLC Somero Enterprises Andrew Sykes RWS Holdings Fevertree Drinks Bioventix PLC XL Media Craneware Concurrent Technology Top quintile for 4 or more quarters Serica Energy PLC Inspired Energy PLC Johnson Service Group Prenier Technical Services Caretech Holdings ULS Technology Dotdigital Group Portfolio averages 53 stocks with an average of 14 new purchases each quarter 23 stocks in current list held for more than 4 quarters and 10 stocks held for more than 8 quarters As well as the consistent scoring names in the table above there were many more stocks that occasionally dropped out but then returned with a strong sequence (stocks that flit between first and second quintile) Source: Bloomberg, 01/10/12-30/09/17 25

26 Frequency Analysing the simulated AIM portfolio 14 Portfolio holdings by market cap Market Cap ( m) Q to September Date Source: Bloomberg, 01/10/12-30/09/17 26

27 Median Market Cap GBP (Millions) Analysing the simulated AIM portfolio Median market cap comparison FTSE AIM All-Share AIM 250 TESS AIM Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Date Source: Bloomberg, 01/10/12-30/09/17 27

28 Analysing the simulated AIM portfolio Example holding Restore Operates in targeted and interrelated sectors of the office support services market #1 or #2 UK market position; nationwide presence Strong growth through acquisition, integration and improvement, UK focus and cross-selling opportunities Predictable recurring revenues and high customer retention High barriers to entry Data Protection Regulation Good earnings visibility Attractive margins Source: company reports and Thesis research 28

29 Analysing the simulated AIM portfolio Example holding Somero Enterprises Pioneered the Laser Screed machine market in 1986 High level of precision in concrete surface flatness Portfolio of 13 products, protected by a portfolio of 63 patents Profitable growth with excellent margins Highly cash generative business; unleveraged balance sheet Broad global reach with equipment sold in 90+ countries Dominant market position Significant barriers to entry based on technology Source: company reports and Thesis research 29

30 Thesis AIM service Proposition Transparent annual charge 1.2% plus VAT No initial charges Minimum fee 1,000 ISA Thesis Nominee initially Platform exposure on appropriate platforms to follow 30

31 Chichester (Head Office) Exchange Building, St John s Street, Chichester, West Sussex PO19 1UP Tel: Fax: Brighton Pacific House, 126 Dyke Road, Brighton, East Sussex BN1 3TE Tel: Fax: Guildford 84 North Street, Guildford, Surrey GU1 4AU Tel: Fax: Lymington Solent House, Cannon Street, Lymington SO41 9BR Tel: Fax: Thesis Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Investors should be aware that the value of their investments and the income from them can fall as well as rise and they may not receive back the full amount they invest. Past performance is not a guide to future performance. Investments denominated in foreign currencies are subject to fluctuations in exchange rates which can be favourable or unfavourable. TAM1710_25