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A Brighter Dawn

We end this very tumultuous year with a smörgåsbord of investor optimism. The past three months has been the remarkable story of how our scientists can develop world-saving vaccines in record time, of how our businesses can quickly adapt, even of how the UK and EU can uncover enough common ground for a trade deal. As such, the fourth quarter generally brought much better news for investors than we had dared hope for earlier in the year.

The recovery in share prices and portfolio values has been dramatic. Indeed, had you looked at your portfolio value only at the start and end of 2020, the year would have seemed entirely unremarkable. For the fourth quarter, however, our AIM portfolios were up an average +20% over the three months (full performance statistics overleaf).

The general trend we reported in the autumn of companies trading better than they feared has continued. We are now seeing a return to formal profit guidance, dividends, and even acquisitions. Corporate confidence has come a long way since the spring. Moreover, the last-minute swerve away from the No Deal Brexit cliff edge will be very welcome news for the UK’s smallest companies – and not just from a day-to-day operational perspective. Since the summer of 2016, the uncertainties of Brexit have weighed heavily on UK stock markets. Greater clarity over our future relationship with our European cousins and the wider world is the first step to that discount unwinding.

Meanwhile, the COVID-19 vaccines provide real hope for an end to social restrictions. The caveat, of course, is that it is always darkest just before the Day dawneth. The near-term will inevitably bring stricter restrictions to contain the virus before we are deemed sufficiently vaccinated. We are not yet out of this pandemic, and its potential still to upset financial markets should not be underestimated. That said, remember that investing is inherently a long-term endeavour. Imbedded in the price of a share is value that should be measured in decades of cash flows, not mere quarters. Human nature is such that we will always seek and find something to worry about. But our sense as 2020 ends is that, on many fronts, prospects for the UK’s smaller companies are looking brighter than for quite some time.

You can read the rest of the AIM Service Q4 2020 Investors’ Report here.

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