AIM Inheritance Tax ServiceAIM Inheritance Tax ISA
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A further update on the Octopus AIM Inheritance Tax Service and ISA

3:08pm 20 Mar 2020 - Written by Richard Power, Head of Smaller Companies

Below is a further update on how coronavirus is impacting the Octopus AIM Inheritance Tax Service.

Our investment processes while working remotely

Our investment processes while working remotely

We thought we would update you on our investment processes following this change in working environment. The important thing is that it’s business as usual for us and the management of the portfolios continues, albeit more remotely.  In place of the face to face meetings that we usually have with management teams of portfolio companies, we are speaking to them regularly via conference calls with a set up that allows for our usual team-wide involvement. We continue to have access to all of the analysts on the companies in our portfolios and, of course, the research they are producing.

We have been managing AIM portfolios for 15 years. The team have managed this product through the 2008 financial crisis, giving us confidence in the approach we are taking today. 

We have diverse portfolios of 25 to 30 established and profitable companies. However, share prices of all companies quoted on the stock market are being impacted and have fallen steeply. This is a typical reaction to a shock in the market. The eye of the storm is yet to pass, but it will, and as the number of new coronavirus cases slows, we expect sentiment to shift very rapidly leading to share price recovery, just as we have seen so far in China. 

Our investment approach during this period

Our investment approach during this period

We became increasingly concerned about the impact of the virus in mid-February. Our concern at that time was limited to China and the impact to the supply chain for UK companies. Share prices have fallen very steeply in response to the uncertainty, but we expect to see more rational pricing of companies in the future, connected to the level of business interruption.

We take a long-term view and still expect many companies in the portfolio to be able to double revenues over the next five years. It is a discretionary portfolio service so we will be making the decision on when to invest. The portfolios we manage will remain fully invested, in order to qualify for Business Property Relief. Rest assured, we are taking significant care prior to committing client cash into the market.

We are responding by buying ‘half a holding’ in companies we consider to be oversold, and are taking a longer term view – not always easy to do in the face of extreme short term uncertainty. We think it is important to be participating, as the correction is likely to happen quite quickly once investors can see through the worst of the crisis.

Recent performance of the portfolios

Recent performance of the portfolios

The portfolios have fared slightly better than the wider small and mid-cap indices because they have no exposure to some of the worst affected sectors such as Travel, Banks and Oil & Gas. They also have very limited exposure to the Retail and Leisure sectors. 

When selecting companies for these portfolios, we look for certain characteristics that we think compliment the investment objective of the product. As a result, we tend to be overweight in sectors such as Business Services and Technology, which benefit from high levels of recurring revenue.

The more management teams that we speak to, the more confident we become in the long term opportunity for the companies in the portfolio. We are aware that the recent market moves will be causing concern amongst some of the investor base, and we are always available to talk to clients who have further questions or who need reassurance. 

Please don’t hesitate to call us on 0800 316 2067 and ask to be put through to my team.