Why I want to buy shares of this ASX small cap LIC

Naos Emerging Opportunities Company Ltd (ASX:NCC) is high on my watchlist.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I think that Naos Emerging Opportunities Company Ltd (ASX: NCC) is one of the best ASX small cap listed investment companies (LICs) on the ASX.

It focuses on very small ASX shares with market capitalisations under $250 million. These businesses could provide the best investment opportunities because they have much bigger growth runways. They are also under-researched, so the valuations are usually lower.

I'm attracted to the Naos way of investing because the investment team focuses on value with long-term growth, ignoring the index and holding a small number of high-conviction ideas.

I also like that Naos invests with environmental, social and governance (ESG) criteria. Plus, the Naos staff are shareholders themselves, with the LIC's directors holding four million shares.

So, the setup is good, but it's the returns that are the most important thing. Over the past month for October 2018 the LIC's portfolio outperformed the S&P/ASX Small Ordinaries Accumulation Index by 3.51% because it only fell by 6.09% compared to the index's fall of 9.6%.

Since inception in February 2013 the LIC's portfolio has outperformed the index by 9.75% per annum by generating an average return of 14.66% per year before fees but after expenses.

Another good reason to like this LIC is that it aims to pay a sustainable, growing fully franked dividend. It has been successful with this – its dividend has grown each year since FY13. It currently has a grossed-up dividend yield of 8.7%.

However, one thing to be wary with small caps is that they can be far more volatile than larger caps. There is also a chance that Naos will underperform the index in the short-term or long-term due to its investment choices or fees.

Foolish takeaway

This Naos LIC is one of my favourite LIC ideas, but I haven't been able to push the buy button in recent months because it hasn't traded at an attractive enough discount.

Based on its just-released NTA update, it's trading at around its underlying portfolio value. Therefore, it's a fair price to buy it today, however I'd like to buy it at a decent discount, if that ever occurs in the future.

Should you invest $1,000 in Naos Emerging Opportunities Company Limited right now?

Before you buy Naos Emerging Opportunities Company Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Naos Emerging Opportunities Company Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 6 March 2025

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Child drinking milk out of a glass.
Share Gainers

Guess which ASX All Ords share just rocketed 12% in today's crashing market?

This ASX All Ords share is surging today despite the Trump tariff market turmoil. But why?

Read more »

Excited couple celebrating success while looking at smartphone.
Share Gainers

Why Astral, Newmont, Ramelius, and Synlait shares are defying the market selloff and rising

These shares are rising despite the market weakness today. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why ANZ, Breville, Cettire, and Treasury Wine shares are dropping today

These shares are having a tough time on Thursday. But why?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Market News

How are ASX 200 investors responding to the new Trump tariffs today?

Australia didn’t escape the new Trump tariffs. Here’s how ASX investors are repositioning today.

Read more »

A man sitting at his desktop computer leans forward onto his elbows and yawns while he rubs his eyes as though he is very tired.
Share Fallers

These were the worst ASX 200 shares to own in Q1 2025

Let's see why investors were selling off these shares during the first quarter.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's what to expect on what could be a very eventful day for the share market.

Read more »

Opinions

Why I'll continue investing in ASX shares in 2025 no matter what

I’m still optimistic about the long-term.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another positive day for ASX investors this hump day.

Read more »