As interest rates continue to come down, more and more people are turning to the stock market as an investment outlet.

One of the most tax-efficient vehicles for investing in the Irish stock market is through Special Portfolio Investment Accounts (SPIAs). These accounts are run by stockbroking companies and must be invested in the Irish equity and bond markets. All investment gains within a SPIA, whether through income or capital gain, are only liable to tax at the rate of 10 per cent.

The last Budget, which reduced the general rate of Capital Gains Tax (CGT) to 20 percent from the previous 40 per cent, has led to renewed debate as to the relative attractions of a SPIA.

The unambiguous conclusion is that for anyone with more than about £25,000 to invest in the Irish stock market, a SPIA is still more tax-efficient than investing directly. This is primarily because the Minister for Finance, Mr McCreevy, made adverse changes to the income tax treatment of dividend income.

The effective removal of the tax credit attaching to dividends and the fact that scrip dividends are no longer attractive from a tax viewpoint, means that dividend income will now be effectively taxed at the shareholder's top marginal income tax rate. In most cases this will be the top rate of 46 per cent compared with a rate of only 10 per cent within a SPIA. With the medium-term prospects for the Irish equity market remaining very attractive it is likely that more and more investors will invest in SPIAs. There are some restrictions, one of which is that at least 10 per cent of the opening portfolio must be invested in companies with a capitalisation of under £100 million.

When SPIAs were first introduced in 1993 a major justification for the tax break was to encourage investment in smaller Irish companies. However, with the strong rise in equity values since then, the number of companies with a sub£100 million market capitalisation has dwindled. For most investors the SPIA would not be seen as a speculative investment and therefore exploration and other high-risk stocks would be avoided.

Excluding exploration stocks, there are now only about a dozen companies that fall within the sub£100 million market capitalisation. However, this list includes companies which would have to be considered as very speculative investments.

For example, Mackie International is a company that has fallen on bad times and is not expected to return to profit for years. Another once high flying company is James Crean, but after several years of under-performance it is now capitalised at only £70 million. While a reasonable argument can be made for recovery, investment in Crean shares would still have to be considered as speculative.

Unfortunately, for new SPIA investors some of the better quality smaller companies have only recently broken through the £100 million barrier. Arnotts, which is now capitalised at £110 million, is a very solid small company investment. The recovery at Barlo, the radiator manufacturer, has continued apace and it is now capitalised at £117 million. Another smaller company which has produced a stellar performance in recent years is Heiton Holdings, but it is now capitalised at £112 million.

The best hope for SPIA investors comes from new listings and in this respect the first new listing of 1998 provides a welcome addition. Athlone Extrusions is capitalised at just more than £50 million and is a very attractive small company investment. The core business of the group is the extrusion of polystyrene sheet and film. Polystyrene is used commercially in three forms:

general purpose;

high impact; and

expanded.

General purpose polystyrene is a hard, rigid material and is used mainly in the manufacture of shower cubicle panels, packaging products and certain DIY applications.

High-impact polystyrene is created by the addition of a rubber compound which improves its strength. Applications include refrigerator liners, caravan interior trim, and point-of-sale display units. Expanded polystyrene is used for automotive trims, luggage, toys and furniture.

At the issue price of 91p the shares are on a price-earnings ratio of 13.3 and a dividend yield of 2.3 per cent. However, the shares have got off to a strong debut and are now trading in the 110 to 115p range. With profits likely to grow in the 15-20 per cent range, a balance sheet which boasts virtually no debt, and a very modern plant the shares look well underpinned at current levels.

For anyone setting up a SPIA, Athlone Extrusions provides a very attractive and solid share for the small company element of a SPIA.