| FTSE 100 | 24.05% |
| FTSE 250 | 127.00% |
| DAX 30 | 133.70% |
| S&P 500 | 68.88% |
| Dow Jones | 67.62% |
| Nikkei 225 | 70.65% |
| AIM All Share | -26.25% |
| AIM 100 | -35.40% |
This is why you may be losing on your AIM stocks
Not all of you reading this will have lost money trading AIM (Alternative Investment Market) stocks, but many of you will.
Even those that are profitable are likely to have a selection of AIM shares suffering heavy losses.
Countless will be welcomed with a sea of red each time they log into their dealing accounts.
This may be why.
Ten year performance:
The numbers are very difficult to argue against.
Over the last ten years, the London AIM market has tremendously underperformed all major equity benchmark indices.
In the face of deflation, constraining demographics and natural disasters, even the Japanese Nikkei has managed to post gains.
That is not to say that all companies listed on the AIM market are basket cases, far from it. In fact, some of the best performing mutual funds focus on the AIM market.
Wood Street Microcap Investment Fund, which invests almost exclusively in AIM stocks, is up 185% over 5 years. However, the fund’s net assets are only £28.4m (31/12/14), which is dwarfed by funds that focus on Blue Chips such as Invesco Perpetual High Income (£13.2 billion) and Newton Global income (£4.54 billion).
Due to the lack of capital allocation from large fund managers, the Alternative Investment Market is dominated by inexperienced private investors who have limited capital and tend to gamble large percentages of their savings in single potential ‘multibagger’ shares touted on bulletin boards.
The participants and companies that make up the AIM have created a market that perplexes investors with baffling and unexplained price movements but keeps them coming back with the hope of getting rich quick.
Stock Spikes
A company has just had a brilliant RNS release, the long awaited approval or contract is finally here, the share price rallies sharply – only to just as quickly tumble back down.
These spikes occur all too often to companies listed on London’s AIM market. Similar to ‘pump and dump’ scams, these spikes draw unsuspecting investors in to sharply rallying stocks, that swiftly reverse, leaving many with loss making positions.
Very rarely do you see such pronounced chart patterns in FTSE 350 companies, typically strong results lead to analyst re-ratings and a continual trend higher. Of course there are bouts of profit taking along the way but these tend to be mere blips.
Extended Downtrends
One explanation for the peculiar price action in AIM stocks is that investors, who have long been sitting in losing positions, rush for the exit on the first sign of any positivity pushing prices back down.
As many stocks have been stuck is such long term downtrends, a positive update is seen by the overwhelming majority as an opportunity to cut their losses.
It’s the classic ‘I’ll get out on the next rally’.
The problem is, if everyone has the same plan a downside bias is created.
Lack of Liquidity
Exacerbating this phenomena is the lack of new funds disillusioned investors are willing to pump into offside positions they have been tied into for the last 18 months.
This lack of liquidity itself is to the detriment of many AIM stocks.
AIM stocks do not enjoy the level of coverage from investment banks that main market shares do. This means that there is a void of fresh buyers to invest on the back of a note from their broker that would provide beaten up main market stocks with some buyers.
The lack of buyers creates a situation where prices drift as investors throw in the towel, fed up with continual declines in share prices.
This only discourages other investors, creating a sluggishly slow snowball effect.
The Figures
Of the 1076 AIM listed stocks researched by the UK Investor Magazine, from a year ago, 364 are up, 634 are down and 78 are unchanged. Companies that are recorded as unchanged are either unchanged, suspended or have listed in the last year.
So of those covered, only 33.8% are up over a year against 58.9% that are down.
There is a valid argument that the AIM is a stock pickers market, indeed there are 48 companies that are up over 100% in the last year whereas only 3 stocks in the FTSE 350 have doubled.
Although there are 48 companies that have doubled, there are a whopping 225 stocks that have sunk more than 50%. That’s 20.9% of the total market.
For those that value statistics and probabilities when making investment decisions, the Alternative Investment Market will look utterly uninvestable.
That’s not to say you can’t make money from the AIM, take AB Dynamics is up 34% over the last year and Hutchinson China Meditech up 85.6% over the same period.
Microsoft announce further job cuts
Microsoft has announced that it will be cutting 7800 jobs, primarily in its Nokia phone division.
Microsoft acquired Nokia in 2011, in an attempt to muscle in on the smartphone market. However the job cuts, combined with an announcement to write off nearly all of the value of its Nokia acquisition, signal that the company now considers the deal to have been a bad move. Microsoft may now be conceding the smartphone war to other names dominating the market, including Samsung, Google and Apple.
The anouncement comes just after CEO Satya Nadella warned that there would be “tough choices” ahead for the company, who also made 18,000 job cuts last year.
Microsoft (NASDAQ: MSFT) are trading down 0.14% today.
ECB President admits it will be “difficult” to make a deal with Greece
European Central Bank President Mario Draghi has voiced doubts about the possibility of reaching a deal with Greece.
According to Italian paper Il Sole 24 Ore, the ECB chief said it was unlikely that a solution would be found for Greece, admitting that it would be “really difficult” to end the Greek crisis.
He also commented that it was unprobable that Russia would come to their aid either: “It does not seem like a real risk. They don’t have the money themselves.”
Greece have formally applied for a three-year loan from the European Stability Mechanism bailout fund, and has until midnight to present a convincing proposal.
Global markets appear to be unaffected by the Greek issue; in early trading France’s CAC added 1.2 pc, Germany’s DAX rose 0.9 pc and the FTSE 100 gained 0.6 pc.
AB Foods FTSE 100 top riser after revenues rise 2%
AB Foods were 3.3% to the good at 9:30am in London trading following the release of a trading statement that showed revenues for the 40 weeks to 20th June were 2% higher than the previous period.
Although revenues rose on a constant currency basis AB Foods were still experiencing FX headwinds that meant at actual exchange rates revenue was flat.
Primark continued to carry the group, the budget clothing store enjoyed a 13% increase in sales from a year earlier helped by new store openings in the Netherlands and Germany.
Investors would have been pleased to see that their flagging sugar business was showing some signs of recovery. A long time thorn in the side of ABF’s operations the sugar unit has been helped by a pickup in sugar prices.
The outlook for their sugar operations are improving and may provide further upside in the coming year. “As quota sugar stocks reduce, EU sugar prices, as reported by the European Commission, have shown some signs of recovery, albeit moderated by continued low world sugar prices,” the company said in a statement
Shanghai Composite posts best day since 2009
The Shanghai Composite has posted the biggest one day gain since 2009 as the Chinese government unleashed another set of measures to boost confidence in the market.
The Chinese government have put selling limits in place to prevent major shareholders liquidating their holdings. Authorities have warned they will enforce the ban on those large shareholders that sell their shares within six months.
The move is one of many interventions by the Chinese government to halt a sell off that has already wiped 30% from the value of mainland equities in the last three weeks.
“A huge amount of wealth has been wiped out … People are underestimating the damage to the real economy,” said Michiro Naito, executive director of JPMorgan in Tokyo.
Indeed, it is very difficult for anyone to sell their shares at the moment as around 50% of mainland shares, worth around $2.6 trillion, have been suspended.
The latest steps by the Chinese government have many doubting that there will be any true reforms of Chinese stock markets in the near future as equities are repeatedly manipulated by liquidity injections, restrictions and speculation that the government will actually begin to buy shares to prop up the market.
The optimism may only be temporary but it was enough to support commodities and in turn FTSE 100 mining companies that were among the top risers in early trading.
Shell shares drop after problems disrupt Arctic venture
Shares in Royal Dutch Shell (LON:RDSB) hit their lowest point since 2011 yesterday, over fears that their Arctic Ocean project may be under threat.
Royal Dutch Shell is on the verge of drilling in the Arctic Ocean, a risky venture setting them apart from most other competitors; very few oil and gas groups are considering Arctic exploration after the large drop in oil prices since last summer, combined with the cost of exploration in such a remote area. Recently the oil giant has been hit with a series of problems that may impact on the smooth running of the project.
An agency said last week that Shell would not be able to drill two wells simultaneously within a 15-mile radius, to minimize the impact on walruses. Although Shell had planned to drill two wells this year, this may mean that they are restricted to just one.
This came just before Shell announced that an icebreaker carrying a piece of safety equipment to a drilling site in arctic Alaskan waters returned to shore after suffering a minor hull breach.
Shell are planning to transport two rigs more than 2,000 miles up the Alaska coast to the Chukchi Sea, accompanied by 30 support vessels and seven aircraft. The company has already incurred significant costs with its stop-start Alaskan Arctic campaign, and its total spending is set to rise to $8.4bn by the end of next year.
Ann Pickard, an executive vice president who runs Shell’s Arctic division, commented: “Everybody’s watching to see if we’re going to fail or succeed out there. If we fail for whatever reason, I think the U.S. is another 25 years” away from developing Arctic resources.”
The project has sparked several environmental protests; environmentalists warn that disturbing its unique and sensitive ecological balance could spell disaster for the world at large.
“We simply cannot afford to burn the oil that might lie underneath the Arctic if we are serious about staving off the worst impacts of climate change,” said Ben Ayliffe, Greenpeace project head for Arctic Campaign.
House builders demolished by Summer Budget
UK house builders bore the brunt of the Chancellors budget after he removed tax relief for buy-to-let investors – potential reducing the amount of homes that are purchased for investment purposes.
The UK’s leading homebuilders typically sell many new homes off plan, often to those that are making an investment.
Osborne said his desire to create a fairer housing market was the motive for introducing the changes.
Barratt Developments, Persimmon and Taylor Wimpey were the FTSE 100’s top fallers and The FTSE 350 House builder’s index was the biggest sector faller.
Home builders have enjoyed significant support from the government in the last few years and this is the first major negative intervention to the house builders the Tories have made.
The Tories have said they would like more people to own a home but there may be the unintended consequence of higher rents for lower income households.
Home builders have enjoyed significant support from the government in the last few years and this is the first major negative intervention to the house builders the Tories have made.
The Tories have said they would like more people to own a home but there may be the unintended consequence of higher rents for lower income households. Osborne reforms dividends
In today’s Budget George Obsorne further supported savers by reforming dividends meaning 85% of investors will pay less tax.
George Osborne said of his reforms: “I am today undertaking a major and long overdue reform to simplify the taxation of dividends. The dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers”
The announcement came among many changes to the tax system that were aimed at reducing tax bills for working people. Corporation tax was also slashed, Osborne said by 2020 corporation tax would be reduced to 18%.
The FTSE 100 rallied on the news and was trading up around 1% in the wake of the announcement, however much of this can be attributed to a rebound from yesterday’s selloff.
Ruroc eyes up expansion through crowdfunding campaign
Ruroc, creators of the world’s first fully integrated ski helmet, goggle and mask are seeking to crowdfund through online platform Crowd2Fund. They are seeking a £150,000 revenue loan, with 10% APR.
The company, first established in 2010, has already proven itself in the marketplace; Ruroc’s helmets are used by over 20,000 people worldwide and are frequently seen in the Formula One Pit lanes on Sky Sports. The company are hoping to use the loan to introducing a new range of products, including an updated version of the RG-1.
The business currently turns over more than £1 million and has been experiencing double digit revenue growth year on year. The company’s flagship product, the RG-1, is fully patented and permanently prevents goggles fogging without the use of electronics.
One of Ruroc’s strengths is having a strong following online. They have a number of celebrity fans, such as Simon Pegg, close to 2,500 followers on Twitter and over half a million likes on Facebook. This has resulted in a brand following, who have helped fuel sales internationally; currently 88% of sales are from international customers. The company feel that crowdfunding is the best source of finance, giving their existing customers the chance to invest and grow the company.
Daniel Rees, the MD of Ruroc, says: “The new helmet will help to alleviate the problem that we have with seasonality as it will be certified across a number of sports including road and mountain biking, as well as a selection of other action sports.”
Rees believes that the revenue loan suits businesses such as Ruroc which are seasonal.
Rees says, “Crowd2Fund’s revenue loan was a massive attraction for us as we are a seasonal business and this offers a much easier solution than making fixed monthly repayments.”
Crowd2Fund are the only UK-based crowdfunding platform to offer the revenue loan model.
For more information on this investment opportunity, visit Ruroc’s page on the Crowd2Fund website.
Chinese stock market crash snowballs
It was only a couple of months ago analysts were touting the economic recovery in China as reason to pile into Chinese equities to benefit from corporate earnings and central bank easing.
That trade would have been very successful for a nimble trader who exited near the top, however those inexperienced Chinese individuals, who account for roughly 85% of the market, are now running for the hills as the crash in Chinese stocks snowballs.
“I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities to Reuters.
Panic is contagious and China has an epidemic. Around half of the stock market has been halted and those who piled in on margin are in a huge amount of trouble.
The selloff continues despite intervention from authorities who are doing there best to contain the market volatility.
“It’s just a matter of whether it will fall more slowly, or continue to slump in freefall,” said Qi Yifeng, analyst at CEBM. If this is the sentiment shared by the masses, the Chinese stock market could have a lot further to fall.