Investing in small cap stocks gives you a chance to invest in potentially break out companies in the early stages of growth. Common attributes of small caps are they are usually underfollowed and lacking wide investor attention, have large insider ownership and may be invested in niche areas. This means we can find companies that have low valuations with better investment features. Here are 3 reasons why you should own small cap equities.
- Small Cap Stocks Outperform Large Cap Stocks, Historically. All great companies once started out small, therefore they can grow in ways that are simply impossible for large companies. Buying these stocks early before the broader financial market, when they are young and trade at low prices, allows for incredible growth prospects. So, if you’re not invested in this space, you’re potentially missing out on the best gains.
- Buy Before Big Institutions and Mutual Funds Can. A huge advantage of investing in small cap stocks is the opportunity to beat institutional investors. Because mutual funds and other investment vehicles have restrictions on buying large portions of any one company’s outstanding shares, many funds will not be able to give small cap stocks a position in their portfolio. This allows individual investors who can spot promising companies the chance to get in before the institutional investors start buying shares and pushing up the price.
- Lack of Coverage Creates Small Cap Bargains and Higher Growth Potential. There is usually very limited research coverage on small caps due to their size alone. Compare this to many large cap stocks which have hundreds of analysts analyzing and following their every move. This creates potential to find undervalued and undiscovered gems in the small cap segment of the market and why small caps typically have higher growth rates than larger companies. The market often under prices small caps relative to similar larger companies, this means investors are typically getting better value for their investment dollar
Acumen Capital Partners and the Woo Fong Team specializes in this market and can introduce you to some of the best small cap stocks in Canada. This is one of the primary reasons why we apply our fundamental research to this area of the market, where we can truly add value and find the best growth and value stocks for your portfolio.
Small Cap Discretionary Portfolio Fact Sheet
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