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 Nvidia right now?

Before you buy Nvidia 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 Nvidia 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 30 April 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

A neon sign says 'Top Ten'.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a rough trading day for ASX stocks this Monday.

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Broker Notes

Bell Potter names more of the best ASX 200 stocks to buy in May

These stocks could be best buys this month according to the broker.

Read more »

A financial expert or broker looks worried as he checks out a graph showing market volatility.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Oil worker using a smartphone in front of an oil rig.
Energy Shares

ASX 200 energy shares plunge on shock OPEC move

ASX 200 energy shares like Woodside and Santos are tumbling on Monday. Let’s find out why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why 4DMedical, Gold Road, Syrah, and Tyro shares are racing higher today

These shares are starting the week strongly. But why?

Read more »

Rising gold share price represented by a green arrow on piles of gold block.
Gold

2 ASX gold stocks racing higher in Monday's sinking market

Investors are sending these ASX gold stocks flying higher on Monday. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Brainchip, Helia Group, Reliance Worldwide, and Westpac shares are dropping today

These shares are starting the week in the red. But why?

Read more »

Man looking upwards contemplating which shares to buy
Broker Notes

CSL shares have climbed 10% since 11 April. Is it too late to buy?

What are analysts saying about this biotech giant after its recent rally? Let's find out.

Read more »