ISA investors missing out on AIM opportunities
As the 2011/12 ISA deadline approaches and investors seek investment opportunities Sheridan Admans, investment research manager at The Share Centre, discusses the benefits of investing in smaller companies.
"It is widely believed that AIM stocks cannot be held in an ISA and although this is true for the large majority, there are numerous AIM listed companies that can. Those companies that are dual-listed on another recognised exchange can offer diversification to an ISA and greater growth potential. This may be something to consider for investors with a higher appetite for risk who are prepared to move down the market cap scale to focus on small to mid cap opportunities.
"Mostly large blue chip companies and household names feature in the top 20 purchased stocks by The Share Centre customers so far this tax year. However, maybe more surprisingly AIM listed oil and gas producers Xcite Energy and Range Resources have also been amongst the most popular.
"North Sea oilfields operator Xcite Energy has attracted buyers throughout the year hoping to profit from its Bentley field. The stock has been very volatile but investors have continued to buy despite the falling share price. It appears to be a stock favoured by traders prepared to play a risky game. More recently interest has been driven by drilling updates on proposed new wells.
"Range Resources attracted investors at the beginning of the tax year after taking control of Trinidad licences which raised £20m. The stock appears to have been favoured by traders throughout the year and the falling share price has attracted bargain hunters. This seems to have been a preferred play for investors speculating on a potential growth opportunity.
"In equity market rallies small and mid cap companies have seen the greatest returns as they tend to be more sensitive to cycles and industrial exposure than larger capitalised companies, so the earning recovery potential is far greater.
"Investors may also be attracted to the nimble characteristic of a smaller company, which means they are often quicker at identifying growth opportunities and acting on them than their larger counter parts who can get caught up in processes.
"However, investors should be aware that investing in smaller companies is a higher risk strategy and when the markets suffer they usually see the biggest losses.
"Investors wanting exposure to these potential growth opportunities through their ISA can invest in circa 80 AIM companies through The Share Centre."