"It is widely believed that AIM stocks cannot be held in an ISA. 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," he said.
Performance of indices over 3-yrs
Source: FE Analytics
Our data shows that the FTSE Small Cap index has returned around 100 per cent in the past three years, compared with 72 per cent from the FTSE 100.
Investments of this type tend to be more volatile, however. Over a five-year period small caps are down 23.9 per cent, while the FTSE 100 is up 17.3 per cent. They have not fared too well over 12 months, either; the FTSE Small Cap index has returned 1.9 per cent during this time while the FTSE 100 is up 10.5 per cent.
AIM is even more volatile; it is down 5.8 per cent this year, up 117 per cent over three years, and down 23 per cent over five years.
AIM companies are among The Share Centre's most-bought stocks of 2011 to 2012.
"Mostly large blue chip companies and household names feature in the 20 most-purchased stocks by The Share Centre customers so far this tax year. However, AIM-listed oil and gas producers Xcite Energy and Range Resources have also been among the most popular," Admans said.
North Sea oil fields operator Xcite Energy has attracted buyers who are hoping to profit from its Bentley field. Admans says the stock has been very volatile, but investors have continued to buy despite the falling share price.
"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," he continued.
"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 characteristics of a smaller company, which means they are often quicker at identifying growth opportunities and acting on them than their larger counterparts who can get caught up in processes."
He finished: "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."