The AIM market surged at the end of last year after the government made it possible to hold them in tax-efficient ISAs.
However, it has been one of the areas most hit by the recent sell offs in high-risk areas, and Mumford says this is a great opportunity.
“I think it’s been the most exciting time because of the sell-off in AIM stocks and small caps,” he said. “I put it down almost entirely to the number of IPOs coming out and people raising money to pay for them.”
“I have this problem myself: I am always really interested so if I want to buy an IPO I have to sell something.”
“Then of course you have the situation that the AIM market isn’t as liquid as the FTSE and the same goes for the smaller companies market.”
“For me it has created a lot of opportunities and I wish I had more money to invest. I think it’s a healthy thing as well.”
Data from FE Analytics shows that the FTSE AIM index is down 5.5 per cent this year, a far worse result than that of any of the main market sectors.
Performance of indices in 2014
Source: FE Analytics
This is after a strong run in which it far exceeded the gains of the other indices as markets rose until March.
Performance of indices over 1yr
Source: FE Analytics
“Since last August when AIM stocks were allowed into ISAs the AIM market has taken off. It has become respectable and has attracted investors’ attention,” Mumford said.
“A lot of venture capital funds have used the opportunity to sell down their holdings, but I think there are a lot of companies in there that can really do well.”
“There has been the temptation to take profits but further down the line AIM will pick up again,” he added. “You are also getting decent yields off some of those stocks.”
Mumford says that one of the major reasons to be optimistic about the market is the number of “proper” companies that are choosing to list on AIM rather than on the main market.
However, he admits that the falling number of IPOs and their success is indicative of the slowdown on the index, with clothing company Fat Face Fat pulling plans to float the most recent example.
“Other companies are going to struggle a little bit. A number of companies are being priced too highly,” he said.
However, he points out that these issues have been felt on the main market too, where Saga was forced to price its IPO at the bottom of the forecasted range and to reduce the number of shares to be sold off out of disappointment in the price on offer from the market.
However, the quality of the offering is reducing, Mumford says: whereas he was considering 75 per cent of the IPOs that came across his desk last Christmas he is now interested in only 25 per cent.
Mumford’s fund has managed to prosper despite the sell-off. The £33m portfolio is up 2.66 per cent in the year-to-date as the average IMA UK Smaller Companies fund is down 0.38 per cent.
Over three years it is well ahead of its benchmark, but behind its sector, although the latter is not really a fair comparison and tells you more about the relative performance of the indices.
Performance of fund versus sector and index over 3yrs
Source: FE Analytics
The manager says that one of the secrets of his success is buying a wide number of companies to ensure he is not exposed to the inevitable blow-ups.
He has also benefited by avoiding the largest stocks on AIM, a number of which have suffered serious falls.
Mumford doesn't hold ASOS, which has lost 30 per cent year to dat on fears of a slowdown in sales, and Quindell, which has come off by a similar amount following allegations of accounting mispractice it strongly denies.