Small and mid-cap shares usually only make up a small portion of a typical share portfolio, but I think including these types of shares in a portfolio is important as it provides investors with the opportunity to generate above-average returns.
While I tend to steer clear of highly speculative shares, the ASX does offer quite a number of exciting small-cap shares that investors can sink their teeth into, including:
Updater Inc (ASX: UPD)
Updater is a U.S-based technology company that has developed a software solution that enables households to relocate more easily by automatically updating accounts and records, transferring utilities and forwarding mail. As the graph below highlights, the company's solution is becoming increasingly popular and it now has a market penetration of more than 9%.
Although the $200 million company is definitely gaining traction, it is still a fair way off from being profitable. As a result, Updater is certainly only for the risk tolerant investor with a fairly long time horizon.
MNF Group Ltd (ASX: MNF)
MNF Group is a $340 million telecommunications company that provides VoIP (Voice over Internet Protocol) data and video services to residential and business customers. Pleasingly, the company has enjoyed very strong levels of organic growth, which has been complemented by a number of savvy acquisitions. This has led to a sharp rise in profitability over the past five years, as highlighted below.
More importantly, MNF's outlook is impressive and the company has already flagged the prospect of further strategic acquisitions. The shares aren't cheap, trading at 28x forecast earnings, but MNF currently looks like one of the few telecommunications companies that is likely to have consistent earnings growth over the coming years.
Speedcast International Ltd (ASX: SDA)
Speedcast International is another option for investors who want exposure to the telecommunications sector, without being exposed to the volatility currently impacting the traditional players in the sector.
The company provides satellite-based communications networks across a wide range of industries including energy, maritime and mining.
Speedcast has delivered impressive growth over recent years, although a recently completed acquisition has made some investors a little nervous. However, if the integration goes ahead as planned, I think investors can expect to see the shares trade significantly higher from here.
