Most investors tend to gravitate towards the nation's larger companies due to their perception of greater safety, liquidity and often dividends. But while these are an important element in every portfolio, they often don't possess the capacity to generate the enormous returns that many smaller companies are capable of.
Although they generally do carry a higher element of risk, it could be strongly argued that exposure to a number of small-cap companies is necessary to achieve sustainable market-beating returns in the long-run.
With that in mind, here are three that I believe are well worth your attention today.
Burson Group Ltd (ASX: BAP), which is Australia's leading trade-focused distributor of automotive aftermarket parts, debuted on the ASX in April 2014 and has generated significant shareholder returns ever since. The company is gradually expanding its network across Australia and opened its first Western Australian store earlier this week, with three more to open over the coming months.
While some investors might be hesitant to buy smaller companies right now, given the headwinds facing the local economy, it could be argued that Burson will actually thrive during an economic downturn. As uncertainty increases, more and more people will hold onto their older vehicles rather than opting for new ones, which will mean more repair work will likely be needed.
Burson's shares are up 3% today at $3.39, and could generate fantastic returns over the coming years.
Catapult Group International Ltd (ASX: CAT) is a name that most investors are likely unfamiliar to, but if you're a sports fan, you're bound to have seen its products in use.
Developed out of the Australian Institute of Sport (AIS), Catapult is a sports analytics company that develops specific algorithms which provide real-time data to monitor and measure the performance of elite athletes on game day. As a perfect example, you may have seen AFL or rugby league players running around wearing what look to be sports-bras, but are actually a holder for these monitoring devices.
It's very early days for Catapult and it boasts a market capitalisation of just $43 million, but it could be a very strong prospect moving forward.
Collection House Limited (ASX: CLH) is another company that many investors will never have heard of. The company, which boasts a market capitalisation just under $300 million, is one of Australia's leading providers of receivables management, or debt collection, to you and me.
Businesses are increasingly outsourcing the burden of having to chase up overdue accounts to companies, like Collection House, who specialise in doing just that. Often, Collection House 'buys' the debts for a small percentage of the total account value and pockets the profits when it successfully retrieves the amount owing. Of course, it is bound to make a loss on some accounts but it has a strong track record for growing earnings nonetheless.
Currently trading at $2.24, I believe Collection House is still a fantastic buy and could generate fantastic returns when the market eventually clues onto its potential. In the meantime, the stock offers a generous 4% dividend yield, fully franked!
