‘Chaos Investments’ is a fund dedicated to long term investing in companies that are listed on the AIM market, a sub-market of the London Stock Exchange that has been designed to cater to small and growing companies. ‘Long term’ constitutes a period of at least six months.
The fund is not bound by any investment mandate such as:
– Sector weighting of fund
– Cash weighting of fund
– Minimum and maximum exposure to one particular stock
– Minimum and maximum market capitalization of one particular stock
This enables the fund to capitalize on the frequent irrational valuations of companies and the significant volatility of share price movements that is synonymous with the AIM market.
The six month minimum investment holding period is only to be considered as a guideline. In reality, in the majority of circumstances long term investments will be held for at least two years. Equally, were a holding of Chaos Investments to re-rate dramatically within six months following initial investment, the fund would contemplate taking profits.
The AIM market is home to approximately 1,000 companies. The median market capitalization of these constituents is currently circa £20m. The majority of institutional investors have strict mandates in place that prevent investment in companies with market capitalizations of less than £50m, and in some cases less than £500m (primarily owing to institutional investors’ unit size, combined with risk profiling and illiquidity in share dealing).
As such, there are a multitude of companies listed on AIM that lack the backing of institutional investors. This consequently results in a material dearth of independent research on these stocks; which in turn creates an environment where small businesses can grow largely unnoticed by the wider market, and trade at substantial valuation discounts both on an intrinsic basis and relative to their wider peer groups.
The Chaos Investment fund seeks to identify and invest in such companies.