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The stock market had a bad day on Monday: the FTSE 100 fell by 2.6pc. But some of the Aim‑quoted stocks in our Inheritance Tax Portfolio did far worse.
Volex, the portfolio’s best performer since purchase, lost 9.6pc, while TinyBuild fell by 7.7pc and Naked Wines shed 6.8pc. FD Technologies, formerly First Derivatives, was 6.7pc in the red. Others to fall by more than 5pc were RWS, Brooks Macdonald, Jet2 and Tekmar.
Only two of our 25 holdings gained: Michelmersh by just 0.8pc and Tristel by a meatier 4.3pc. The portfolio as a whole lost 3.5pc – a third more than London’s blue chips.
Questor cannot claim to be surprised – indeed, to see Aim shares magnify the movement in their larger counterparts is exactly what we would expect. When markets take fright, as we remarked on Wednesday, it is always the more speculative stocks that suffer the most. And while not every company on Aim can be called speculative, that is certainly how the market is perceived. That alone can be enough to encourage nervous investors to sell.
We also pointed out that it is the more highly valued stocks that are most at risk and certainly Aim had performed much more strongly than the FTSE 100 in the wake of the pandemic, so it was arguably primed for a correction. The blue chip index has only just regained its level of the eve of the pandemic, while the FTSE Aim 100 index had exceeded its own pre-Covid levels by more than a third as long ago as the late summer of last year.
Since then it has been falling and is now roughly 10pc higher than in February 2020, when the virus sent all markets tumbling. The average stock in our portfolio (including current and past holdings) has gained 21.3pc since its purchase whereas that figure was 37.1pc when we published a summary of performance in June last year, which shows that our own picks have broadly mirrored the trends of the wider Aim market.
Questor’s purpose today is simply to remind investors that this volatility – both from one day to the next and from one year to another – is part and parcel of investing in smaller stocks for their promise of faster growth.
Our advice can only be to grit your teeth on days such as Monday, when some of your Aim stocks may lose a tenth of their value, in the expectation of sharp moves in the other direction before long. And the very next day Volex did indeed rise by 3.5pc, followed by 5.5pc on Wednesday.
Investing for inheritance tax exemption is automatically a long-term business and savers will at least have the time to ride out these thrills and spills.
The online fashion shop is not part of our Inheritance Tax Portfolio but we have tipped it to the wider readership for its growth prospects. However, Asos would qualify for the exemption, according to Fundamental Asset Management, a specialist in investing in Aim shares for IHT purposes, so some readers may hold it in their own inheritance tax portfolios.
But they won’t be able to for much longer. The company, now worth £2.3bn, has decided that it’s time to switch to the main market. This automatically means the end of qualification for the “business relief” tax break that gives some Aim‑quoted shares their IHT exemption.
Investors who sell their Asos shares and reinvest the proceeds in another qualifying stock will be treated as if they had had one uninterrupted qualifying holding from the date of purchase of their Asos shares. However, for this to be the case they must sell their Asos holding before the move to the main market becomes “unconditional”, Fundamental said, which is likely to be next month. The actual switch is expected to take place by the end of February.
We advise readers who own Asos for the IHT benefit to sell without delay and invest the exact proceeds in another qualifying stock – this is important to ensure that the period of ownership of Asos is included when qualification for the tax break is tested.
Questor says: sell
Share price at close: £22.55
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