Since last Monday, investors have been able to put shares traded on the less liquid AIM index, which has more lax reporting requirements than the main market, into a tax-efficient ISA wrapper.
Figures from The Share Centre suggest minerals and resources companies were especially popular, despite the poor performance of these areas in recent months.
Gulf Keystone Petroleum
The most bought stock through The Share Centre was Gulf Keystone Petroleum, an oil exploration and production company that concentrates on Iraqi Kurdistan. The company claims it has 19 billion barrels of oil in the region.
It has been winding down operations in Algeria since 2009 and is currently concluding its exit from that country.
GKP has recently been embroiled in a dispute with Tom Dobell’s team on the M&G Recovery fund, which is a major shareholder in the company.
M&G has criticised corporate governance at the company and sought to fight the re-election of certain directors, proposing “independent” alternatives instead. This approach was objected to by the chairman of GKP’s nominations committee, Field Marshal Lord Guthrie, former chief of the defence staff.
The dispute has its roots in an on-going power struggle for control of the Bermuda-based firm.
Performance of stock over 5yrs
Source: FE Analytics
It has been a rocky ride for its shares recently, according to data from FE Analytics, although they have returned 545.27 per cent over five years.
Sirius Minerals
Sirius Minerals is a mining company focused on potash. It has been in the headlines over the past few years thanks to its plans to dig a mine in the North York Moors National Park.
Planning applications have been under consideration for some time and have brushed off earlier objections from the MoD.
However, last month Sirius asked the authorities to delay their decision after consultants it had appointed said the company had overstated the need for mineheads to be built within the protected area.
Last week the company’s former broker Jefferies also said there were "major funding hurdles" facing the project, while the world potash price has been hit by the collapse of an international cartel that had kept prices high.
It has been a tough time for the company and our data shows shares have suffered, losing 51.4 per cent year-to-date.
Performance of stock in 2013
Source: FE Analytics
It seems that many investors think shares have fallen enough to make it a buying opportunity, however.
Fastjet
Fastjet is another troubled company that investors cannot get enough of. easyJet founder Sir Stelios Haji-Ioannou has been a long-standing investor in this African-focused low-cost airline, and has acted as a consultant.
However, in recent weeks the company has been involved in controversy after it decided to hand Sir Stelios newly created shares in lieu of royalty and consultancy payments. The new shares will dilute other investors’ holdings.
Shares had fallen from 4p at the start of the year to 1.16p when the announcement was made, and data from FE Analytics shows they have lost 73.99 per cent of their value this year.
Performance of stock in 2013
Source: FE Analytics
Sir Stelios says he remains committed to bringing low-cost flights to Africa, but the company’s first 18 months of operations have been loss-making.
Nighthawk Energy
This is a shale gas fracking company with its principal project in Colorado. Shares are listed in the UK, however.
Unlike with the first three examples on the list, investors are buying into a rising price, with shares up 51.77 per cent year-to-date and 216.94 per cent over 12 months.
Performance of stock over 1yr
Source: FE Analytics
Successful drilling and positive production updates have seen shares spike over the past few weeks, making 44.77 per cent since 1 August.
Red Rock Resources
Red Rock Resources is a miner focused on gold and iron ore, with operations in Kenya, Colombia and Greenland.
The stock has lost 96.12 per cent of its value since it peaked in November 2010, according to data from FE Analytics.
However, shares have risen 117.24 per cent since 31 July, as the company announced it was nearing the sale of a large part of its majority stake in Nama Greenland.
In Kenya, the sector is involved in controversy surrounding the validity of certain licences issued between the dissolution of parliament and the new elections under a new constitution.
Meanwhile, the company is suffering illegal strikes in Colombia.
All these stocks are clearly highly volatile and there is a serious risk of investors losing their capital. For this reason Danny Cox (pictured), head of advice at Hargreaves Lansdown, suggests that investors should not invest in AIM shares solely for their tax benefits.
"We have seen some interest from our clients in holding AIM shares inside an ISA for their inheritance tax benefits," he said
"At first sight, the attraction of an IHT-free ISA is clear: hold shares in a virtually tax-free ISA which becomes inheritance tax-free on death, without the need to make gifts, or lose control of the money."
"In my view, the number of investors who will actually use AIM stocks as an inheritance tax (IHT) planning tool will be a small minority."
Cox points out that AIM shares have less onerous reporting requirements, meaning that poor corporate governance is a bigger risk. Wide bid-ask spreads, low liquidity and low dividends also make them less investor friendly.
However, the average investor looking at IHT planning is likely to be elderly or retired, risk averse and hoping to protect capital while drawing an income.
"AIM stocks are not usually a good fit for these types of investors and I suspect, were it not for Business Property Relief, most clients would not choose this type of investment," Cox said.
"The key issue here is to always consider the investment merits first and look at the tax benefits as an added bonus, not a reason to invest."