Numerous studies have shown the benefit to investors of having exposure to small and mid-capitalisation (cap) stocks. There are at least three reasons which explain the higher returns which can be achieved in this sector.
- Firstly, the risks are greater when dealing with smaller companies; hence it is reasonable that potential returns should be higher.
- Secondly, smaller companies can grow at faster rates simply due to their smaller size.
- Thirdly, in general the smaller end of the market is less efficient due to less analysts following small and mid-cap stocks which can create more opportunities for mispricing.
Wilson Asset Management (WAM) is a specialist small and mid-cap fund manager with an impressive investment performance track record.
Here are four of the largest positions (as at 28 February 2015) that WAM has taken in the listed investment company WAM Capital Limited (ASX: WAM), which it manages.
- Retail Food Group Limited (ASX: RFG): market capitalisation $1.1 billion – The group continues to grow its stable of brands via acquisition allowing the company to leverage its skills across a wider franchise base.
- CSG Limited (ASX: CSV): market cap $422 million – The print solutions company has turned its fortunes around and appears to be well placed to build on its recent interim results which showed a 20% improvement in underlying net profit after tax.
- Austral Limited (ASX: ASB): market cap $602 million – The boat builder is well positioned to benefit from continued weakness in the Australian dollar at a time when its revenues are increasing significantly thanks to contracts with both the Australian and US governments to build vessels for them.
- iSelect Ltd (ASX: ISU): market cap $388 million – A leading online comparison site which reported strong growth numbers at its recent half year results. Management described its outlook for the second half as "well positioned for growth."
