Small Cap Portfolio Update

Richard Hemming

Our Small Cap Portfolio Manager shows ASX investors how a consistent value orientated approach can generate growth and reduced your risk. In this update he highlights the increasing risk in chasing stocks whose value is based on blue sky as interest rates climb.

Small Cap Portfolio Performance

Our Small Cap Portfolio is conservatively managed to provide exposure to growth, but not so exposed that we cannot sleep at night! We had three outstanding Small Cap stocks that outperformed. 

Small Caps paying dividends

The fundamentals of our underlying holdings are as strong as they have ever been.  Of all 16 companies that are in our portfolio,11 companies pay dividends, which is interesting given that we have never targeted dividend paying companies. But we have targeted companies making cash profits. In fact, the proportion of the portfolio valued at anything higher than a mid teens multiple of current year earnings is less than 20%. We are ready for more difficult times, and our companies have the balance sheets to pay a 3.3% forecast yield on the holdings, in line with dividends’ historic contribution.

Five lessons from our portfolio manager

  1. Take advantage of the liquidity now to rightsize your holdings, and upgrade the quality of the names you own at prices that are realisable.
  2. The importance of diversification!
  3. The importance of having your own narrative, but not blindly believing it.
  4. On many occasions the market price of a stock does not reflect its fundamental value, but other market participants’ irrational hopes.
  5. atience is key. Archegos, GameStop and Greensill highlight the dangers of leverage and of greed. Often the best approach when you don’t want to buy into a sky rocketing stock is to do nothing.

Small Cap portfolio strategy for growth

When investing in shares you don't put all your eggs in one basket. Our portfolio manager recommends building a diversified ASX share portfolio and Small Caps are an important part of this strategy. 

It's important to get the structure of your ASX share portfolio right. Half your ASX share portfolio should be invested directly in Blue Chip or in market based investments. Up to 25% should be in cash so you are always liquid to take advantage of buying opportunities and 25% of every portfolio should be invested in 7-10 quality Small Caps to give your share portfolio the opportunity to really grow. Remember that it's much easier for a small company to double or triple in value than for a Blue Chip to grow by 5-10%. Small Caps are growth stocks and when a small company grows, so does your wealth.

Use our portfolio as a guide

Use our Small Cap Portfolio as a guide on which shares to buy, hold and sell and the weight to place on those shares. Our Portfolio will help you no matter now much you are investing. 

To see the stocks we are buying join now and supercharge your future.

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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