Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Sean O’Flannagan, investment manager, Charles Stanley.
A significant proportion of wealth may be lost to future generations through inheritance tax (IHT). Fortunately for British taxpayers, there are means of reducing it. One of the most straightforward is to invest in firms quoted on the Alternative Investment Market (Aim). Aim is not a Recognised Investment Exchange and provided that trading activity is undertaken an Aim-quoted company will fall outside an individual’s estate for IHT after a two-year holding period due to business property relief.
As Aim is less regulated and the shares that trade on it tend to suffer above average volatility, the risks of a sizeable loss are greater than for companies on the London Stock Exchange’s (LSE) main list. But what is not widely appreciated is that there are several Aim firms of decent size and maturity. Indeed, it is quite possible to find conservatively managed Aim companies with strong franchises, leading market positions and the potential to grow at or above the rate of inflation in the mid-term.
Here are three I think any investor should consider. All were previously quoted on the LSE main list and feature a founding family who retain a big equity stake. That makes it more likely the business will be managed for the long term with a focus on maintaining the strength of the balance sheet. Given the wider economic uncertainty, it is reassuring that each company has been through a series of recessions and so far their business models have proved resilient.
My first tip is James Halstead (LSE: JHD), a major manufacturer of commercial floor coverings and a firm operating successfully throughout the world. This long-established business transferred its listing from the main list of the LSE to Aim in 2002. Halstead’s impressive sales growth and profitability has supported 35 years of consecutive dividend growth. That has been possible on the back of the group’s leading market position, geographic expansion and focus on innovation and customer service.
As evidence of some great business continuity, the chairman, who is the grandson of the founder, joined the board in 1962 and recently stepped down as executive chairman to become non-executive chairman.
My second choice is Nichols (LSE: NICL), a soft drinks business that was established in 1908 and transferred to Aim in 2004. Nichols has consistently delivered double-digit growth over the past decade. This has been boosted by the fact that its market share for the core Vimto range has increased outside the northwest heartland following a series of innovative marketing campaigns.
Overseas growth has been equally impressive, particularly in Africa and the Middle East, following a successful and long-standing partnership with leading third-party distributors.
Lastly comes Young & Co’s Brewery (LSE: YNGA). Founded in 1831, it manages and operates around 240 public houses throughout London and the southeast. Many are in exceptional locations. With extensive asset backing, a well-invested estate and strong cash flow, it has an impressive track record of growing regardless of market conditions. The brewing operation was sold in 2007 and in December 2010 the proceeds reinvested in the acquisition of Geronimo Inns. That in turn has increased the rate of underlying sales growth.