INVESTMENTS

AIM AND ACQUISITIONS – WHERE BIGGER IS NOT ALWAYS BETTER

Joseph Cornwall Investment Manager Puma Investments

Stuart Rollason Investment Director Puma Investments

Since AIM peaked in September 2021 , we have seen steep falls across the market and amongst AIM ’ s largest companies . Size , in this instance assessed by market capitalisation , has not offered protection . Businesses possessing lower margins , like ASOS and Boohoo , have been amongst the companies exposed to inflationary and supply chain pressures . In our view , there has been a misallocation of capital resources due to a sustained period of exceptionally low interest rates . This low interest rate policy , enacted since 2009 , was to stimulate recovery from the 2007 / 2008 financial crisis . We believe that we are now on a path to normalisation of monetary policy . As interest rates rise , the value of future cash flows on any asset decreases . To mitigate this effect , one should focus always on quality sustainable returns on capital and free cash flow . Further , rate rises should diminish the structural advantage of highly rated and larger market capitalisation names , where their elevated equity multiple has allowed for expensive acquisitions

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