Should you stick Aim stocks in your ISA on August 5th?

17 July, 2013 Should you stick Aim stocks in your ISA on August 5th? Dear Buzzhairs Buzzhairs, Good news! As of next month, you'll be able to include stocks traded on London's Alternative Investment Market (AIM) in your Isa. According to a bulletin just out from the Tax Incentivised Savings Association, the date has now been set for 5 August – a year ahead of the original plan. This move was part of the Budget announced in March. And it's hoped that you will start investing more of your money into small British stocks – providing aid for our faltering economic recovery. As a sweetener, the government has even scrapped stamp duty on those shares as well. That's great news – less tax is always welcome! And given that many firms on Aim already avoid inheritance tax, you can see why it'll be such a boon to be able to stash them away in your Isa. Advertisement The single biggest bull market of the next decade? This explosive tech sector could prove one of the greatest investment growth stories of our generation… …and this exclusive report will reveal exactly how you can take full advantage. Read it now and find out two direct ways you could profit. Get the full low-down right now. Red Hot Biotech Alert is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose.  Forecasts are not a reliable indicator of future results. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600. The Aim market is struggling The only thing is, junior markets like Aim can resemble the Wild West. I mean, one of the very reasons firms list on Aim is down to its light-touch regulation. That's why you see so many foreign companies listed on Aim. But this may not be in investors' interests. Take a look at the table below. It shows the performance of aim against the FTSE and FTSE 250 over the last year... Source: Google Finance It's clear that Aim stocks (blue line) haven't benefitted much from the recent equity rally. While the FTSE (red) is up nearly 20% over the last year, Aim is struggling to breach the 5% mark. And as for the FTSE 250, It's up well over 30%... in fact, if you look closely, you'll see that it's trading at 23 times earnings... that seems pretty punchy to me! But Aim hasn't really participated in the uplift. Why? Well because it's probably the wrong type of bull market. Let me explain what I mean by that... How to spot a healthy bull market Broadly speaking there are three types of bull market. As an investor; particularly on Aim, you should be aware of what type of bull you're dealing with. Classic bull markets are driven by a growing and vibrant economy coupled with an accommodative investment environment. Note: a growing economy is not enough... you need to get long term investors aboard too. Take the 1980s stock market bull. In many ways, the economy had to hit rock bottom before major reforms were put in place that allowed fresh growth. With the seventies well and truly behind us, a pro-investment environment and hoards of boomers with funds to invest, the markets were set for great things. This sort of bull market tends to lift all boats; investors value equities more highly... and bid up price earnings ratios. The bull market feeds on itself... as stocks go up, more investors climb aboard.  Advertisement The Death of the Pound! Find out why one £1bn asset manager is predicting a sterling collapse… …and how he thinks you should protect yourself. Here's the urgent story. The Price Report is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600. The trendy bull The second type of bull market is what you might call a new paradigm bull. Look no further than the late-nineties dotcom bull for that! This type of bull market is likely to send the junior markets soaring. During the dotcom run-up, the junior markets were the place to be. New firms were cropping up every week. They sold the story, took the cash, and a buying frenzy ensued. While the FTSE was buoyed by this boundless enthusiasm, there's no way it could keep up. Yes, technology, media and telecoms did well; but other businesses struggled to find investors... they were dismissed as 'old economy.' Unless fund managers had exposure to the new economy, they fell behind. There's no doubt that the junior markets do well when there's a clear trend to follow. The natural resource sector boom that followed on from the dotcom crash helped lift the junior markets somewhat. But is that the kind of bull market we have now? No it's not… The artificial bull The bull that emerged from the carnage of both the dotcom bust and the 2008 banking crisis was very much a contrived bull. Central banks, particularly the US Fed, wanted stock markets back up. In order to deliver, they lowered interest rates. Essentially, lower interest rates encourage investors to bid up prices for stocks. While a 4% yield on a stock looks pretty lousy at a time when you can get 6% on a relatively safe government bond, your 4% dividend looks pretty good against a 2% coupon on government debt. This sort of financial repression has pushed investors into equities; and in my opinion, it ain't over yet. But hang on... most Aim stocks don't really pay dividends... Aim stocks are all about growth. And that's probably one very good reason why Aim stocks are struggling to deliver. Clearly there's more to Aim's poor performance. And it all comes back to the 'trendy' nature of these stocks... Fashions don't last Now, before I make any sweeping generalisations. Let me first start by saying there are some 1,100 stocks on Aim. Even the FTSE all share only has about 600 stocks in it. Clearly, Aim is full of all sorts. There are good yield stocks, solid and established firms too; many of which could, if they chose be listed on the main markets – Mulberry and ASOS, to name but two. The tricky thing about Aim is separating the genuine article stocks from the wasters. You need a man on the ground for that job, because the mainstream press simply doesn't bother to research all these companies. Tom Bulford is an Aim expert, and he's been working that beat for years. A good eye for a stock and plenty of legwork are his best assets. Click here to hear Tom's latest big story from the Aim market. But there's no doubt that Aim is full of all the latest, trendy sectors. By now, most of the dotcom fatalities have been cleared out. And right now, Aim is struggling because of the natural resource stocks hangover from the millennium resources boom. Aim investing highlights the need to understand your bull market. Yes, by all means, use the trendy stocks to ride the boom; but if you do, always make sure you're looking for the exit signs. For the moment, I don't see any great reason to jump aboard the majority of Aim stocks. Remember, the market we're in is contrived. It's the planner's way of pushing investors into yield stocks. If you find some high yielders on Aim, then great; go for it. But I don't think now is the right time to fill up on such small and risky stocks. This is not that sort of bull! Good investing, Bengt Saelensminde The Right Side PS: Got a comment on this article? Leave a comment on the MoneyWeek website, here. 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