I want to invest more of my portfolio into ASX dividend share WAM Microcap Limited (ASX: WMI).
What is WAM Microcap?
WAM Microcap is a listed investment company (LIC) which invests in small caps with market capitalisations usually under $300 million at the time of purchase.
It's operated by the investment team at Wilson Asset Management (WAM), which is led by veteran investor Geoff Wilson.
Why do I want to buy more?
WAM Microcap is already a position in my portfolio but I want to play a larger part. It's getting harder for investors to outperform the index, particularly after costs, because of the amount of accessible information on all the shares out there, the amount of competing intelligent investors and the low growth world we live in now.
But the small cap world is a world that not many people look at. There will be some shares that become the blue chips of the future. There are certainly lots of shares that will beat the market in a particular year. Smaller shares usually have lower valuations but more growth potential before they become mature.
The WAM Microcap investment team have proven to be very good investors. Since inception in June 2017 the portfolio has delivered an average return per annum of 21.9% before fees, taxes and expenses. Over the past year its gross return has been 35.6%.
I'm not about to make WAM Microcap a quarter of my portfolio, but small caps could be one of the best ways to outperform the overall ASX.
Some of its largest holdings at 31 December 2019 were: City Chic Collective Ltd (ASX: CCX), PSC Insurance Group Ltd (ASX: PSI), Temple & Webster Group Ltd (ASX: TPW), Pacific Smiles Group Ltd (ASX: PSQ), Think Childcare Ltd (ASX: TNK) and Class Ltd (ASX: CL1).
Of course, I expect that at some point the small cap end of the market will go through a painful fall (and again and again), but that's price of investing in small caps and indeed any share in the world. Those drops give us good opportunities to buy shares at a cheaper price.
Foolish takeaway
To me, the dividend from WAM Microcap is a bonus. It now has a grossed-up dividend yield of 5.7%, this is high enough to be comfortably better than cash, but not too high where it's unsustainable. I also like that it's possible to sometimes buy WAM Microcap at a discount to its net tangible assets (NTA). I may buy some WAM Microcap shares in a week or two.
