As Under the Radar Report celebrates five years in publication this month, co-founder Richard Hemming speaks about what makes a good investor and how Under the Radar selects Small Caps to buy from the 1800 plus in its ASX universe.
Under the Radar Report's 5 year performance history
We are proud of our performance since we kicked off some five years ago. Since its formation in 2011, Under The Radar’s average return of around 30% beats both the All Ordinaries and the ASX200.
We launched Under the Radar to fill the information void in the small cap-end of the market as we know there are great companies to invest in, but individual investors didn’t have access to any quality research.
The average return for the stocks in our universe is close to 70%, and if you include all the tips since we opened our doors, this is still an impressive 30%.
At any time we cover between 80 to 100 stocks, which come from the 1800 or so stocks that have market capitalisations of less than $300m.
In the coming issues we’ll celebrate our 5 years of picking winners (and some losers) and most importantly recently, we’ve been taking profits.
Taking Profits on your shares
Lower interest rates are driving investors up the risk curve so expect volatility.
It’s not an accident that we’ve been telling people to take profits in the past few months. Asset prices have more than doubled in the past seven to ten years, while income levels have barely moved. People are going up the risk curve to get more bang for their buck – and it’s working!
Finding genuine growth in Small Cap stocks
Small caps with good business models grow fast but can be hard to find. It’s not luck but an ongoing process of careful timing, business analysis and learning from past losses.
How does Under the Radar Report pick stocks?
In the coming issues of Under the Radar, we’ll look at cases involving the criteria we use to pick stocks.
1. Genuine Growth Small Cap Companies
Small companies are growing fast. Often these are stocks you need to grab onto straight away, even though they might look expensive. They normally have a great business model involving little capital investment but growing earnings, which is a winning combination.
We have a number of companies that our subscribers have done very well from including, Sirtex (SRX), ImpediMed (IPD), Mayne Pharma (MYX)and Bellamy’s (BAL).
2. Once Were Warriors
Big companies often have cyclical earnings and low profit margins, but some in this category have been bought down by a difficult division/ a change in
the business model – particularly in how investors perceive them and fall out of favour and they sometimes drop into the small cap universe. They can
still turn around.
This is very much an opportunistic category, which can come along either because of a broader market decline, or as company specific problems emerge.
Examples here include UGL (UGL), Elders (ELD), RCR Tomlinson (RCR) and Mayne Pharma (MYX)
3. Finding Value in Small Cap industrials
Small cap industrial stocks often have cyclical earnings but they have more resilience than the market gives them credit for, often boasting a strong balance sheet and resilient earnings. We look for companies with good products and an edge over competitors. You want them to have a defendable niche.
Companies here that we have covered include Nick Scali (NSK) and Freedom Food (FNP)
4. Under the Radar’s Secret Santa Strategy!
A company’s value can often be hidden by loss making or equity accounted assets. We spend the time and do the research to find hidden value in small caps.
Good examples include Macquarie Telecoms (MAQ) and APN News (APN).
Richard Hemming’s Round Table with Geoff Wilson and Karl Siegling
They recently met to discuss their investment experience over the years and we will reveal their picks and pitfalls in an upcoming special birthday issue.
They talk about our first experiences investing, which generally involved losing money. There is nothing like losing money for learning.
They also discuss why it’s not the number winners you pick but how you protect yourself from losing money which matters as much as anything else.
Celebrating 5 years of small caps success
It’s not easy choosing which stocks to buy. Under The Radar's job is to tell you which are the best small cap stocks to invest in. We filter through the 1,800 small cap companies listed on the ASX and select well run small cap companies that are positioned for growth. We give you weekly reports, which include buy, sell, hold recommendations, full access online and commentary from portfolio managers.
Download our free five year performance report and learn even more about what makes a great investor, and how Under the Radar chooses our small cap recommendations.