During 2019 I want to buy more shares of WAM Microcap Limited (ASX: WMI) for my portfolio.
WAM Microcap is the listed investment company (LIC) in the Wilson Asset Management (WAM) stable which invests in the smallest shares on the ASX.
The size of the businesses it searches for are ones with market capitalisations under $300 million at the time of acquisition.
Since inception in June 2017, WAM Microcap has delivered an average return per annum of 16.6% before fees and expenses. Not only has it outperformed the S&P/ASX Small Ordinaries Accumulation Index by an average of 4.5% per annum since inception, but it has also handily outperformed the general ASX index too.
One of the main reasons why I want to buy more WAM Microcap shares this year is because it's easier to outperform the overall market by choosing smaller shares. Those small businesses have a bigger profit growth runway because of their size and they are also less covered by investors and analysts alike, which should mean lower valuations.
I think now is a good time to buy WAM Microcap shares because the last year has been tough for its portfolio due to market volatility, which has also decreased the valuation premium so that it's trading at around its net tangible assets (NTA) per share right now, which means it's much better value than WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX) at the moment.
There will be some very volatile years, such as the past 12 months, but over the next five to ten years it could be the best-performing WAM LIC.
Foolish takeaway
WAM Microcap recently announced a dividend increase of 12.5% in its half-year result, meaning its FY19 grossed-up dividend yield is around 5.1%, which seems like a decent starting dividend yield to me.
