There are several good reasons why I want to buy more shares of WAM Microcap Limited (ASX: WMI).
WAM Microcap is a listed investment company (LIC) that is operated by the high-performing Wilson Asset Management.
One of the main reasons that I like WAM Microcap is that it targets the smallest shares on the ASX. It goes for companies with market capitalisations under $300 million at the time of acquisition. There are plenty of opportunities in this area of the market.
In-fact, the small cap part of the market could be the best place to find opportunities because most other investors don't go looking in that region. This also means that these shares are likely to be valued at a discounted price compared to their peers.
I believe small caps can create the biggest returns for us because they can grow a lot before size becomes a liming factor.
I'm happy to leave the investing in the small cap space to a proven market-beating investment team.
WAM did wonderfully with small caps at WAM Capital Limited (ASX: WAM) until it becomes too big. WAM Microcap is getting back to roots of WAM. It's working well, since inception in June 2017 it has earned an average return per annum of 17.3%.
Since the start of FY19 its portfolio has continued to outperform its benchmark of the S&P/ASX Small Ordinaries Accumulation Index, at the end of November 2018 it had outperformed by 5.7% before fees and taxes.
However, the last month was negative for the market. WAM Microcap portfolio's value declined by 2% in November.
If you're thinking that small caps are far too volatile then that's understandable. However, WAM Microcap's portfolio was 37% cash at the end of November. This provides lot of downside protection, as well as ammunition for beaten-down opportunities.
Foolish takeaway
WAM Microcap is currently trading with an ordinary grossed-up dividend yield of 4.4%. At the pre-open price it's valued at a 5% premium to the November 2018 NTA. I'd be happy to buy it at this price because I think it has the potential to soundly beat the ASX index's return over the longer-term.
