It?s no great surprise to hear Gervais Williams, long a champion of smaller company investing, extol the benefits of the Alternative Investment Market (AIM), the London Stock Exchange?s purpose-built home for ambitious growth companies.
No fund manager has remained so consistently bullish about the junior market, and through some of its darkest periods ? the tech bust, the collapse of commodity stocks, the mass exodus of companies from the market that followed the global financial crisis.
So when Williams claimed this week that AIM is set to become ?the leading smaller companies market in the world?, few eyebrows were raised. But his optimism doesn?t end there. The thesis of his new book, The Future is Small, is nothing less than that AIM ?will be the world?s best market beyond the credit boom?.
For those who have witnessed the various manias and massacres which by Williams? own admission have led to a net return of approximately nil for the AIM All Share index since inception in 1996, this is a pretty startling claim.
But the last phrase, ?beyond the credit boom?, is crucial. Because in Williams? view (and it?s hard to deny), we are still very much in the credit boom at the moment. The global debt market was worth some $78 trillion in 2007; in 2013, following the so-called ?credit crunch?, it was $100 trillion, according to figures from BIS and the IMF quoted in Williams? book.
The accumulation of debt over the past few decades has meant that it has been very easy to make money. All you needed to do was buy a house, or buy the FTSE 100 index, which launched in 1984 at a value of 1,000, and today stands at 6,625.
But, says Williams, this is changing. We can see the early signs of it already ? a levelling off in house prices and the FTSE 100 index are two obvious examples. The inflated debt (and latterly, quantitative easing) that has driven these assets upwards cannot keep growing at the same pace. Yes, the sea change Williams is talking about could, by his own admission, take years. But plenty would agree with his central contention: ?For the last two or three decades we have been borrowing growth from the future. Now it?s payback time.?
Williams reckons that investing in AIM could be the antidote to the low growth and deleveraging that he believes will characterise the coming decades. Here?s why:
- It is one of the very few exchanges that contains genuinely small companies (about half of them below £20 million in market cap). The smaller the company, the less well researched it is, and the greater the information advantage.
- ?Ant-sized? companies can grow even when the general economy doesn?t. In contrast, FTSE 100 behemoths already have large market shares and need a rising macroeconomic tide behind them if they are to get much larger.
- AIM companies are not encumbered with debt as are their mammoth and mid-sized competitors.
- Institutional investors barely give AIM stocks the time of day. When that starts to change, a wall of money meeting some very illiquid stocks will drive them to premium valuations.
- This will, in turn, enable them to raise more money to fund further growth.
If you?re convinced by his arguments and believe Gervais is the man best placed to capture the opportunities, his flagship fund, Miton UK Smaller Companies, is still open for business. He also runs a couple of other mandates that are not exclusively small-cap focused, but nevertheless have sizeable weightings in ant-like companies. These are Miton UK Multi Cap Income (sadly soft-closed) and the closed-ended Diverse Income Trust, both of which have over a third of their assets in AIM stocks, as well as significant weightings towards FTSE Small Cap and Fledgling constituents.
It's also worth taking a look at the idiosyncratic Investment Company, an ancient investment trust that Williams is in the process of restructuring.
Gervais Williams was named Fund Manager of the Year in the What Investment Unit Trust Awards of 2014. His second book, The Future is Small, is published by Harriman House.
Gervais is speaking at the AIM Invest Forum on 25 November 2014.