The Alternative Investment Market has earned a reputation as an index where investors go to get their fingers burned; where risk and low valuations have gone hand in hand for more than a decade.

The index is home to the remnants of former fads and boasts a number of oil, gas and mining companies that appeared following the commodity boom.

Paul Mumford, senior investment director at Cavendish Asset Management and fund manager of the Cavendish Aim fund, believes the abundance of oil and gas companies hurt the index after the commodity bubble burst last year.

"Obviously the index has done pretty poorly compared with other indices," he says. "Part of the reason why the index has been so poor is the behaviour of the resources stocks."

Nevertheless, Mr Mumford says there are a number of buying opportunities in well-run companies in need of cash. Investor appetite for Aim shares could return, he adds, with some signs of interest returning to the market following the flight from equities last year.

"There is a place in the smaller end for companies that do not have capital, but it may take some time before confidence is fully restored," he says.

"If the story is good enough there are probably investors interested in the situation. The risk is great - but so are the rewards."

Some commentators have claimed that the index's soft touch regulation and the myriad listed overseas companies from different regulatory regimes have failed to protect investors from risk.

David Clark, investment manager of the Ignis Smaller Companies fund, says some investors who did not research thoroughly have no reason to complain.

Aim investors can avoid some perceived risk in the market by maintaining a diversified portfolio, he says.

"You should do your homework: don't accept the word of everyone that comes along.

"It's not the fault of the index that there are some dodgy companies out there."

Mr Clark says there have been some cases of opportunist companies listing on the index to raise cash for business plans that may not bear fruit.

"There's no question in my mind that some of the companies that came to Aim were risible.

"A lot of mining and oil exploration companies with nothing more than a piece of paper that gave them permission to drill a hole in the ground."

Venture capital trusts investing in the market have had a particularly torrid time in the past year.

According to Fundamental Data, the VCT Aim Quoted sector has shown losses of 45.2 per cent over the 12 months to February 2.

Andrew Buchanan, fund manager at Octopus Investments, which runs a number of Aim venture capital trusts, believes that the market has performed its function well in spite of negative sentiment from less cautious investors. "It has a reputation for raising capital supporting small companies, a reputation for doing what it should be doing," he says.

"There is still enormous support for smaller companies from dedicated smaller fund companies."

The combination of recent decline in Aim VCT asset bases and underperformance has made raising cash more difficult, he says.

"There are fewer fund managers looking at the market than two or three years ago, which may be because it is more difficult to raise money."

Rob Langston is a reporter on Investment Adviser