ASX Small Cap Share Portfolio Review

Richard Hemming

The chart above shows the four year performance of Under the Radar Report’s ASX Small Cap Share Portfolio, managed by The Idle Speculator. The chart dates back to when we adjusted our strategy to invest only in Small Caps covered by Under the Radar Report and clearly demonstrates positive relative risk adjusted returns. The key is stock selection. If you just took the performance of the stocks the return would have been 12% a year over the period. Including the 25% cash held by the portfolio, this reduces to 8.4%.

Small Cap Portfolio up 38%

Four years ago, seven of our 19 ASX share holdings included Alliance Aviation (AQZ) @ $0.87, Macquarie Telecom (MAQ) @ $13.55, and City Chic Collective (CCX) – then known as Specialty Fashion – @ $0.41, have been multi-baggers.

We did capture a lot of the upside in Omni Bridgeway (OBL) – then known as IMF Bentham – @ $1.96 and Ingenia Communities (INA) @ $2.72, Clover Corp (CLV) @ $0.48, and Webcentral (WCG) then known as Melbourne IT – @ $2.63, selling at the right time. We also sold out of ImpediMed (IPD) at a big profit. We captured some of the upside from Austal (ASB) @ $1.87, but that remains a significant holding because it sells at a mid-single digit multiple of earnings and has net cash. It has been a drag on performance this year.

Over the past few weeks, Gale Pacific (GAP) and Capral (CAA) have been the best performers. These are value stocks showing renewed growth characteristics, our favourite kind.

ASX share portfolio transactions

During April we identified four small purchase transactions, Medical Developments (MVP), Splitit (SPT), Kogan (KGN), and Tassal (TGR). These ASX stock recommendations were communicated to our subscribers on Thursday morning. We got filled in SPT and MVP, however, in the case of KGN and TGR, even a 10% allowance for price movements was not enough. Join now to recieve our weekly Small Cap Reports and we tell you the best 10 Small Cap stocks to buy as well as Buy, Hold, and Sell recommendations from our universe of 100+ Small Caps.

Not chasing stocks has proved to be the correct strategy. As recent events have demonstrated, Kogan’s inventory troubles continued, and the price collapsed late last week below $9. We reinstate our purchase recommendation, to buy 150 shares, at below $11 at Friday’s close.

TGR has also come back. Consumer sentiment is a factor on top of aquacultural risk, hence we will not increase our 1000 shares. We have a similar view on Select Harvests (SHV). We are not looking to make a heavy single commodity bet.

Having both Small Caps in the ASX Small Cap Share portfolio means that we get exposure to the food chain, which we want, but that exposure is a little diversified.

Advice from our ASX share portfolio manager 

We announce in advance what our transactions are intended to be, and giving a wide price range to ensure that transactions can actually happen. As Under the Radar Report has become more popular, this has led to excessive price movement in the shares that we are selecting. There is a natural tendency for Small Caps to move fast as the crowd gets behind or loses faith in a particular story, and this is a crucial consideration that any subscriber investing in smaller stocks needs to take into account. Stock should be acquired when available, at a reasonable price, and should be sold when there is a market, at a reasonable price. Patience is the critical faculty. Doing nothing is an option

Talking of patience, news from Wameja (WJA), formerly eServGlobal, in relation to the proposed takeover by Mastercard, that “agreement in principle has been reached with all relevant parties to resolve” the issues delaying the sale, should lead to its removal from the portfolio. Similar to the Portfolio, its Manager, The Idle Speculator has a small interest.

We are pleased we are erring on the side of safety because it helps us sleep at night. We might miss some big returns but losses have been isolated, and gains have been widespread enough to give some encouragement that our portfolio methodology can make money for subscribers, even when conducted in public in advance.

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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.

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

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