They are simply the small companies listed on the stock market by size, or market cap.
True small caps have a market cap of between $50 and $500 million.
Small Caps are currently not household names.They are a great investment for Australian investors looking to grow their money.
Investing in smaller companies can be very rewarding. As small businesses grow, the same happens with their wealth and yours.
Below we will examine ASX small caps, and explain large caps and the stock market.
What are Small Caps in the stock market?
Small Caps are shares listed with a market cap of between $50m and $500m.
Market cap is simply the $ value of all the shares in the company, so it shows you the size of the company.
There are over 2,000 companies listed on the ASX and most of them are Small Cap companies.
Tell me the difference between large, mid and small cap shares.
The ASX is one of the most concentrated markets in the world, with the top 10 large cap stocks (BHP, Telstra the banks) represent 50% of the overall market!
The All Ordinaries index and large caps
This index contains the top 500 large cap companies and accounts for 90% of the Australian equity market. These large cap stocks have multi-billion dollar valuations, and are financial giants. They get most of the media's attention and dominate the news.
The ASX mid cap stocks
These company's market value is generally between $2 and $10 billion. Mid cap stocks tend to have made considerable progress in establishing successful business models that give investors stability but they are probably not growth prospects.
The S&P/ASX Small Ordinaries Index
This index is used as a benchmark for Small Cap ASX equity portfolios run by professional investor. Companies in this index are still very big and include Fisher & Paykel, Seven Group, and Breville with a market value still in the billions.
The stocks in the index have a market cap in the billions. These are all large cap companies in reality.
True ASX Small Caps
When people talk about a small cap stock that they invested in, they are normally talking about companies with a market cap of between $50-$600 million. These small cap companies are under researched, not covered in the news or by brokers and fund managers as they are not big enough for the large fund managers to invest in.
This is our niche and area of expertise and it's where ASX investors can really have financial success in the short and long term. Because as a small company grows, so does your wealth. Read about some ASX small cap stocks to look for.
Because there is very limited independent analyst coverage on ASX small caps these small cap companies are largely ignored by investors. For a self-investor, investing in small caps can prove extremely worthwhile and profitable. For more information about these investments go to our ultimate guide in Small Cap investing now.
Should I invest in Small Cap stocks?
Owning small cap stocks will increase your portfolio's performance.
Small Caps typically are part of any successful ASX Share Portfolio. They can provide some of the best investments because of their high growth potential. Many of the large cap stocks by market cap were once small caps. In 1998 Amazon.com was around $7 while Tesla had that valuation just over 10 years ago but they are now true large caps.
The bottom line
Larger companies may sometimes mean less risk, but every investor also needs growth shares in their portfolio.
You want a number of outstanding shares to really shoot the lights out and to bank big returns. Examples of Under the Radar Report's recommendations that have done this include: Afterpay, Splitit, Mermaid Marine, and Northern Resources to name a few and it’s this size where individual investors can really make money. Go to this page to read more about our top performing shares and how we did it.
Your personal wealth grows as the small company grows. There are outstanding shares to buy in this small cap space which is why investors follow our advice on Small Cap companies.
ASX Small Caps: You have an investment advantage
It may seem surprising but you, as an individual investors have an advantage over the professionals in this space. Small Caps are exciting to buy, hold and sell because it's the one area of the market that our subscribers, have an advantage over the big fund managers.
The Small Caps on the ASX are just too small for the big fund managers to put their funds into.
Fund managers won't buy into any company until it reaches around $100m but really the majority won't consider investing until it reaches a market cap of $500m.
Why does this matter to you?
This means that the share price of these Small Caps has had to have doubled, tripled and quadrupled before a fund manager will invest capital in it and mum and dad investors have ridden the company's shares outstanding success wave to get there.
And this is precisely what happens. These are just a few of our oustanding shares that were all Under the Radar Report stocks when no-one else was covering them or investing in them.
- AVA Risk Group (AVA)
- Tassal (TGR)
- Afterpay (APT)
- Zip (Z1P)
- Austal (ASB)
- Clover (CLV)
- Macquarie Telecom (MAQ)
- Northern Star (NST)
After a period of fast growth, fund managers become interested in them when the market cap reaches a key tipping point. By which time, the share price has boomed and then the company's share price often booms again as more fund managers buy in.
ACCESS FREE TRIAL
Under the Radar Report selects the best ASX small cap stocks to invest in.
Our report advocates purchases which are not covered anywhere else. Small Companies rarely attract independent analysis because they are too small. But the shares we have covered in the last 10 years have definitely been noticed now and have delivered big returns for our subscribers.
Then there are takeovers
1 in 5 of our stocks have been taken over by bigger companies and have doubled, tripled and more in value. Some that no one knew about are now household names. Think Afterpay or Northern Star Resources. Most recently our lithium stocks are taking off. Read more about the best shares to buy now. To read more about takeovers click here.
But then there are all the small caps, that aren't taken over but just succeed in their niche and become household names, or are success stories of their industries.
Small Caps give investors growth
You simply can't achieve the kinds of gains that you can get in ASX Small Caps that you can through other investments.
Our Small Caps investment team filter through these companies to select a range of Small Caps that we believe can give the best growth to our subscribers. At Under the Radar Report we advise structuring your share portfolio clearly and that up to 25% of your portfolio should be invested across 7-10 Small Cap stocks to diversify your portfolio and position it for growth.
You simply can't achieve the kinds of personal finance gains in other investments that you can in ASX listed Small Cap shares.
Under the Radar's annualised return over our 100+ Small Cap shares is over 50 per cent.
Our annualised average return over all our 100+ small cap share tips is over 50 per cent and this includes stocks like Sirtex Medical and Select Harvests that have tripled in value. 7 out of 10 of our stocks outperform. We don't get every stock right which is why it's so important to diversify.
At Under the Radar Report: Small Caps, we look for value, which means a company that is covering its costs, but has an option on greatness. These kinds of investments aren't found anywhere else.
You need Small Cap information - and you'll find it here
Stocks like the banks, Telstra and some internet companies are trading at record high levels. Investors are confident that their earnings will appreciate, delivering growing dividend income. These companies have high “price risk”. If there is any softening of their earnings growth, their share prices are extremely vulnerable to big falls.
In contrast, what you see with Small Caps, is “information risk”. In these companies their historic earnings performance can often bear little resemblance to their future earnings. And so you need good research before you invest in them.
Under the Radar Report gives you the Small Cap information you need
The Small Caps Under the Radar Report covers and advocates buying are often not covered anywhere else. Fund managers are often not interested in Small Caps, because they are too small and it is hard for big funds to get a meaningful stake.
Under the Radar Report adopts a proprietary investment process in order to look for Small Caps that match our criteria. In addition to analysing company announcements and financials, we spend a great deal of time speaking to the management of the company.
If you want an edge in your portfolio, Small Caps will provide you with real growth. Subscribe to Under the Radar Report. It’s the best investment you’ll ever make.
Start your free trial to start investing successfully in Small Caps
ACCESS FREE TRIAL