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VIDEO: Richard Hemming on a Small Cap Portfolio06.04.2016



We've invited subscribers to ask about investing in Small Caps

We received many questions from subscribers this week and as it happened, a lot related to portfolio management. So I’ll kick off with this subject:

Portfolio Diversification

If you are committed to learning how to invest in all different types of stocks; you can just start our investing with one. This way, you can start out with one stock, you can learn a lot about your risk profile and about investing and then as your experience grows you can diversify into 7-10 small cap stocks.

Your investments revolve around your life experience and where you are; but you have to invest with money that you don’t need tomorrow. 

Ultimately, a sensible portfolio has at least 7; 15 is too many.  We were asked about dividends, and while some small caps pay very generous dividends; Beyond International (BYI) pays 10%, for example, dividends in the small cap space are really the icing on the cake. You want a company to have sufficient confidence in its own business to be reinvesting in it; you want a small company to become a big company.

 

Exchange Traded Funds (ETFs) on small caps?

No there aren’t any exchange traded funds relating to small caps and there are unlikely to be. The idea behind an ETF is liquidity and transparency. The value of an ETF is the value of the individual holdings; in small caps, this would be almost possible.

Because of the lack of information on many small cap stocks and because most analysts simply don't cover them, Under the Radar Report helps you to find the small cap stocks that we believe have the best chance to outperform the market and to go from a small company to a big one!

 

Valuation and NTA

We use all sorts of valuation methodologies, from earnings multiples to DCFs to Net Tangible Assets (NTA). But it’s worth noting that the world has moved from a manufacturing theme where a key part of the company’s assets base were hard assets like resources; to where good will and software development, or intangible assets, are much more important. As services and things like software have grown as part of the economy, intangible assets have also been more important in fundamental analysis.

 

Times have changed but we agree; we love finding high NTA versus the share price but it is less common now because intangibles are much more important.

 

Speculative Stocks

Speculative stocks have their place in any portfolio and we would invest in a few. They have the ability to really outperform the market or to blowup! Before you invest, it is important to know the risks. We always look for companies with a strong balance sheet.

For example with Vmoto (VMT), we’ve always said it’s speculative and one of the reasons is the lack of transparency; which is what we said in our latest research summary.

The bottom line is what we like the thematics of electric scooters; nice idea but very much a blue sky prospect.

 

Mining Services

We have tried to find mining services companies with better balance sheets than average; that are cash heavy and are coming out of the big commodities slump by winning contracts.

These include Logicamms (LCM) and Southern Cross Electricals (SXE).


Gold stocks: the recent outlook has been bearish but is there still value?

We told subscribers to sell a couple of weeks ago and the gold stocks have since dropped 10%. We’re more sanguine at current levels because we like the fundamentals of gold ownership, if your portfolio is big enough, we would be nibbling away at current levels.

Our small cap portfolio holds a bullion ETF. There is too much risk with single mine stocks. We look for miners with a portfolio of mines and assets. We continue to like Northern Star Resources.

Use quality Small Cap Shares to fast track your share portfolio.

 

Small Cap Portfolio Review: WE ARE GOING ALL IN!

Subscribers have been asking us to start trading our portfolio more actively.

Our small cap portfolio was set up nearly 5 years ago as a fully diversified portfolio. It has delivered a solid performance. Since 2011 our universe of stocks has expanded many fold, and we have covered over 100 stocks. We agree that it is now a good time to refresh our portfolio to reflect our subscribers and to ensure by its fifth anniversary in October 2016, we have a high conviction strategy exposed almost exclusively to stocks which qualify for Under the Radar Report's universe. We are going all in!

Rebalancing for Growth
In tomorrow's report we have a full performance appraisal of our portfolio to date, with very favourable comparison to the S&P/ASX Small Ordinaries Index, we look at tax in a portfolio setting, we give a guide to a practical approach to portfolio management, and then give subscribers the transactions of which shares our portfolio manager is buying and selling.

Ongoing transactions
We will then begin trading shares more actively, telling subscribers what we are doing and why with a full review every month. Our aim is to give subscribers a true example of how you can run a fixed amount of money through the ASX with a view to long-term wealth generation.


 

 




About the Author

Caroline Mark

Caroline is the publisher of Under the Radar Report. She has a diverse background, from producing financial publications, to fundraising and marketing.

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