Over the past five years the S&P/ASX Small Ordinaries (Index: ^AXSO) (ASX: XSO) has put on a gain of 25% excluding dividends.
As a comparison, the All Ordinaries has pushed 19.8% higher during the same period.
I believe this demonstrates why having a little exposure to the small cap space could allow your portfolio to outperform the market.
With that in mind, here are three top small cap shares I would buy today:
ELMO Software Ltd (ASX: ELO)
I think that this cloud-based talent management software solutions provider could be a great buy and hold investment option. While its shares have rallied strongly over the last 12 months after smashing its prospectus forecasts, one leading broker still believes they can run notably higher. A note out of Morgan Stanley this week reveals that its analysts have an overweight rating and $6.30 price target on its shares. This price target implies potential upside of 12.5% for its shares based on the current share price.
Money3 Corporation Limited (ASX: MNY)
One of the best mixes of growth and income in the small cap space in my opinion could be Money3. Thanks to the continued success of its secured auto loans business, Money3 is on course to deliver another strong full-year result in FY 2018. Considering the company still only has a 2% share of the secured second-hand automotive finance market, I think it has a significant runway for growth ahead of it. This could lead to strong earnings and dividend growth over the next few years. At present Money3's shares offer a trailing fully franked 4.3% dividend.
Volpara Health Technologies Ltd (ASX: VHT)
One of my favourite small cap shares in the healthcare sector would have to be this fast-growing breast imaging analytics and analysis product provider. I've been very impressed with the way the company has been growing its share of the U.S. market. At the last count, 3.2% of all women screened in the United States for breast cancer were using Volpara's software. Management has set a target of hitting a 9% share of the market by the end of FY 2019 and, given the quality of its technology, I expect it to achieve this. This should lead to strong top line growth that helps justify the premium its shares are trading at today.
