The fund manager Wilson Asset Management (WAM) has recently identified two top small cap shares that it owns in its portfolio that could be ideas.
WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).
There's also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.
WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.
The WAM Microcap portfolio has delivered gross returns (that's before fees, expenses and taxes) of 25.2% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 11.9%.
These are the two small cap shares that WAM outlined in its most recent monthly update:
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Sovereign Cloud Holdings Ltd (ASX: SOV)
WAM describes Sovereign Cloud as an Australia infrastructure as a service (IaaS) provider that is focused on Australian government, defence, intelligence and critical national industry communities.
The fund manager noted that on 22 November 2021, Nextdc Ltd (ASX: NXT) bought an almost 20% stake of the business. Nextdc is a major Australian provider of premium data centre facilities.
According to WAM, this will provide Sovereign Cloud with access to a national network of over 1,500 enterprise customers and more than 730 channel partners.
Proceeds from the equity raising will be used by the small cap share to expand the small cap ASX share's operations and facilitate a move into the enterprise space, including investing in new cloud platforms in Brisbane, Melbourne and Adelaide.
The fund manager noted that Sovereign Cloud continues to see strong demand as it expands nationally, and as more businesses accelerate the transition to the cloud.
Iris Energy Ltd (NASDAQ: IREN)
This is not the typical ASX share investment that WAM Microcap makes, as it isn't actually on the Australian Stock Exchange.
Iris Energy is an Australian company that builds, owns and operates data centres and electrical infrastructure powered by renewable energy to sustainably mine Bitcoin, according to WAM.
In November, the small cap share completed a US$232 million initial public offering (IPO) and listed on the NASDAQ. The company plans to use the proceeds from the offering to fund its growth plans, such as the development of data centres across Canada, the US and Asia Pacific, as well as purchasing Bitcoin miners.
