In the next instalment in our series of exclusive interviews with industry experts, Ian Woolley, Head of AIM Services at Hawksmoor Investment Management, provides his insight on the biggest growth opportunities and most common risks for investors, and discusses his company’s approach to investing.
1.) What tax-efficient schemes does your company work with, and how do you offer a unique/compelling approach for advisers?
Hawksmoor’s AIM Portfolio Service is designed to help clients mitigate potential inheritance tax liabilities. Once owned for just two years, the portfolio will be eligible for Business Relief, and gain up to 100% inheritance tax relief, saving clients’ estates up to 40% of the amount invested. Moreover, AIM shares can be held inside an ISA for even greater tax benefits. A Hawksmoor AIM ISA is subsequently free of capital gains tax, inheritance tax and dividend tax.
When investing in smaller companies, there is a tremendous advantage to being a smaller asset manager. Hawksmoor’s ‘boutique’ size means that we can be nimble. Our deal sizes mean we are not confined to only the largest stocks on AIM but can hunt for opportunities across the whole of the market.
A ‘whole of market’ approach expands the opportunity set, and results in differentiated portfolios. Our sweet spot for investments is around the £100m to £300m bracket: here you can find established, high-quality, growing businesses, but without the valuation premium that prevails amongst the larger AIM shares.
The UK is home to some world-class companies, with huge investment opportunities – particularly further down the size spectrum. Our investees are not start-ups; they are industry leaders or challengers – profitable, well-invested, cash-generative businesses with huge growth potential that fly underneath the radar and reach of the financial industry’s larger institutions.
We are now into our ninth year of running this investment strategy, over which time we have built up a solid record of outperformance. For the three years to the end of December 2023, our portfolios outperformed the wider AIM market by 28%.
2.) How active are you in providing education to advisers on the types of clients that are suitable for these types of investments, as well as any changes in regulation or nuances in the existing rules?’
We run a monthly webinar which focuses exclusively on our AIM Service and AIM-based Business Relief estate planning. These sessions are open to any professional financial adviser. We also work proactively with individual advisers on specific cases, providing a tailored investment report for each prospective client.
This will often explore the more nuanced end of the regulations, such as how a surviving spouse can inherit the ownership period built up by their deceased, or how an AIM portfolio that has already satisfied the two-year ownership period can be gifted to children.
3.) Where and in which types of companies are you seeing the biggest growth opportunities?
The UK is often perceived as home to old economy businesses, such as oil and miners, tobacco, banks, and insurance, but this is only because there are some very large businesses in these sectors which dominate the top end of the market. Further down the market cap spectrum, the UK is home to some world-class companies, exposed to some very fast-growing markets, whether that be in technology, healthcare, or industry. It is amongst small and mid-cap that we find the best growth opportunities – these are currently even more compelling because of the low valuations being applied to the UK market.
4.) What do you see as the biggest risks for investors?
The biggest risk for investors is unknowable: known risks are usually in the price. It is the unknown future events – whether geopolitical, economic, regulatory, technological, environmental or social – that can cause permanent damage to portfolio values. We aim to mitigate the uncertainty by investing in high-quality companies with strong margins, pricing power, and healthy balance sheets. We believe these investments are best able to weather future shocks and recover by ensuring that the prices an investor is paying come with a comfortable margin of safety.
5.) Should advisers be worried about a lack of diversification, and why?
Diversification is rule one on page one of any risk management textbook, and for good reason. However high one’s conviction in a particular company, the world doesn’t move in straight lines, things do go wrong, and stocks can disappoint – sometimes spectacularly so. Diversification means an entire portfolio is not entirely ruined when it does.
That said, it is certainly possible to be overly diversified, which risks mediocre performance. We find success in an investment strategy rooted in the three pillars of quality, valuation and risk management. This forms the cornerstone of every investment decision we make. I wouldn’t want to dilute my portfolio with inferior investments in the name of diversification. As with everything, there’s a balance to be struck. In our AIM portfolios, we typically have 25-30 positions.
