While the time period is extremely short, it does bring to an end a period of long under-performance for the index.
FE Alpha Manager Giles Hargreave warned investors before the changes came into force that there could be a flood of new money into the sector and a subsequent re-rating of its stocks.
Doug Lawson, manager of the TB Amati Smaller Companies fund, says he thinks the process is underway, and that the market offers a decent alternative to expensive mainstream stocks.
"It’s very early days, but since then we have seen that AIM has outperformed and the signs are pretty good," he said.
"AIM has gone through a long period of underperformance and with this change, the stocks seem to be in favour again."
"It’s a combination of new money coming in and AIM getting more attention, and people are starting to recognise there are some really interesting stocks in there," he added.
"The main market has undergone such a re-rating that a lot of sectors look expensive."
Performance of indices since 5 Aug
Source: FE Analytics
The FTSE 350 Mining index has risen more than twice as much as the FTSE AIM market over the same time period, suggesting positive sentiment to this part of the market could also be a factor in the AIM's rise.
However, Lawson says the rest of the market should benefit from increased press coverage and increased inflows whatever happens to the mining sector.
TB Amati Smaller Companies, which Lawson co-manages with FE Alpha Manager Dr Paul Jourdan, is benefiting from the surge of money, being 54 per cent invested in AIM.
Of that, about 20 per cent is in the biggest 50 stocks – the so-called AIM 50 – and a further 7 per cent is in the AIM 100.
Data from FE Analytics shows that the fund was a top-quartile performer in the sector in 2009, 2010 and 2011, but slipped into the bottom quartile in 2012.
The average fund in the sector has caught up with and overtaken the £11.2m TB Amati portfolio in the past 12 months.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Lawson says having money in small cap mining stocks weighed on the fund, but the major reason for its underperformance is the boom in the FTSE 250.
"We were too cautious in the second half of 2012 and we missed the big re-rating on consumer stocks, particularly in the mid cap sector," he said.
"Our universe encompasses mid caps and we did not have exposure. We didn’t see earnings growth coming through, which we were right about, but we didn’t reckon on the massive re-rating that the market underwent."
"The smaller cap funds that have a large mid cap exposure did very well. Those that have a greater small cap exposure in terms of stockpicking didn’t do so well."
Lawson adds his voice to those calling for caution on the current strong run in the UK mid caps.
In a recent FE Trustnet article, SVG IM’s Adam Steiner said that the mid cap areas of the market were trading on unrealistic premiums to other sectors. Lawson agrees that expanding valuations are a worry.
There has been a lot of comment in the press about the lack of earnings growth, for example.
"Stocks can only re-rate so far and we believe in earnings growth over the longer-term," he said.
"I think you need to be careful: to buy the mid cap index on the basis the re-rating will continue is a mistake."
"On a lot of stocks, the earnings have to start catching up with them to justify those multiples."
Lawson says the managers like to look at the "PEG" ratio – P/E to growth, where P/E stands for price to earnings.
A growing figure suggests the price is expanding faster than the company’s earnings are growing and is a warning sign for the managers.
"For the last six to 12 months it has been on an aggressively rising trend [market-wide]," he said.
In April, Jourdan told FE Trustnet that the team had been aggressively buying small cap mining and resources stocks, but Lawson says this is no longer the case.
"We have been reducing our exposure to that area," Lawson said. "We don’t have much mining sector exposure left."
The managers are unconstrained by sector and prefer to look on a stock-specific level. In an earlier article, FE Trustnet looked at the stocks that have seen the most inflows so far, and Lawson says that these are not ones he would buy.
"Unless you really know what you are doing with micro cap stocks, you are wise to put your money into a fund which specialises in AIM rather than trying to pick the stocks yourself," he said.
He has recently bought into motor retailer Virtue Motors.
"The attraction of that was it was one of those situations where fully listed proxies were trading on higher multiples."
"It has attractive growth characteristics and needed to raise money to buy a group of Land Rover dealerships."
"Almost at the same time we had some really new car sales data and improving householder sentiment."
Another stock Lawson has bought that is benefiting from improving consumer sentiment is Dart Group, an aviation and holiday company.
"We also like the fundamentals of that business – it’s incredibly well-run," he said.
"On the tech side of things we like Emis, one of our biggest holdings, which provides software for GP surgeries: it has very stable revenue streams. Not many customers uninstall once they have installed it."
"They are now expanding into other primary care markets like physiotherapists, mental health specialists and so on."
TB Amati Smaller Companies is available with a minimum initial investment of £1,000 and has ongoing charges of 1.88 per cent.
