Brodie-Smith says there are a number of investment trusts listed on AIM that deserve more attention from retail investors, and the AIC is pleased with the new rules, having campaigned for them for a long time.
However, Stephen Peters, investment trust analyst at Charles Stanley, says that investors should be wary of the extra risks involved: AIM stocks have weaker reporting requirements than those on the main list, and are harder to trade.
"Our compliance department would say 'you have plenty of choice on the main market, so why take the extra risk?'"
A further complication is that many of the trusts on AIM are domiciled outside the UK. Peters says this makes it even more important for anyone considering investing to carry out the necessary research.
"If they are willing and able to spend the time understanding the implications of where the fund is listed and domiciled, then there may be value there, but the potential value, and I underline the word potential, comes with an extra level of risk."
Peters points out that there are a number of reasons why a trust might choose to list overseas: sometimes it is to the benefit of investors, but other times it is to avoid stricter corporate governance rules at home.
Brodie-Smith says the extra risks of AIM stocks can be overplayed.
"You pay your money and you take you choice," she said. "You can invest in a specialist fund on the main list which could be very risky."
"On the other hand, an AIM portfolio could be less risky. You need to do your own research and be aware of what they are investing in."
Here we look at some AIM-listed investment trusts that may be worth considering for an ISA once the new rules are clarified and implemented.
Juridica
Juridica invests in litigation claims. It either loans money to law firms pursuing money through the courts, or purchases a stake in the claim itself.
It has a record of producing large special dividends as its cases conclude and it distributes its share of the winnings.
The current yield is 10.79 per cent, according to data from FE Analytics.
The £126.2m Juridica Investments trust is domiciled in Guernsey, which is a beneficial place to list for anyone seeking an income, Peters explains.
Dividends in the UK are received post-deduction of a 10 per cent withholding tax. Even if investors hold a fund within an ISA, where they pay no income tax, the dividends have already been paid.
However, the withholding tax does not exist in Guernsey, meaning that should the fund become available in an ISA, investors will not pay the tax.
On a total return basis the trust has made 42.67 per cent over the past five years, according to data from FE Analytics, and is sitting on an 18.41 per cent discount.
Performance of trust over 5yrs
Source: FE Analytics
Neil Woodford’s Invesco Perpetual High Income fund has a 12.9 per cent stake in the trust, according to figures from Numis.
Good recent results saw the performance fee pushed to 3.26 per cent in the year to December 2012, according to the AIC.
Vietnam Holding
Vietnam Holding has been one of the best-performing trusts of the year so far, having returned 50.63 per cent, according to data from FE Analytics.
Performance of trust vs benchmark in 2013
Source: FE Analytics
The $66.07m Cayman-domiciled trust aims to find medium-sized companies in Vietnam that are often overlooked by foreign investors in the country.
A holding in a single-country developing market trust is inherently high-risk, but it does offer low correlation of returns to the major markets.
Over the last three years the trust has displayed a correlation of 0.25 to the FTSE All Share and 0.18 to the MSCI Emerging Markets index.
Advance Frontier Markets
The £87.9m Advanced Frontier Markets trust offers more diversified access to exotic frontier markets.
Data from FE Analytics shows that it has performed roughly in line with the MSCI Frontier Markets index over the past three years, returning 25.91 per cent.
Performance of trust vs sector and index over 3yrs
Source: FE Analytics
Peters says that while there are reasons to be interested in the frontier markets story, he prefers to get access through the BlackRock Frontiers IT, which is listed on the main market.
He questions why investors would want to overlook the well-regarded BlackRock fund, which has the advantages of a main market listing.
The trust has a shorter track record, having been launched in December 2010, but it has returned 7.93 per cent since then compared with 2.22 per cent from the Advance trust.
Ongoing charges are 1.54 per cent, according to the AIC, and the trust has a performance fee.
Crystal Amber
Crystal Amber is another trust to be held by star income manager Neil Woodford, as seen in a previous FE Trustnet article.
The £73.5m trust aims to build holdings in undervalued companies and encourage the board to realise their investments by selling off the assets.
It is another one domiciled in Guernsey, meaning it benefits from the withholding tax regulations, although it does not have an income focus.
The trust has made 61.59 per cent over the past year, almost double the 33.69 per cent made by the average UK growth trust.
It is currently trading on a discount of 0.6 per cent.
