Strategy

Pretty little things

Many smaller companies managers have been shifting into micro caps in 2018, should investors be following suit?
Thomas McMahon
Last update 19 June 2018

Many smaller companies managers have been shifting into micro caps in the first half of 2018, raising the question whether investors should be following suit. Aberforth Smaller Companies, BlackRock Smaller Companies and JPMorgan Smaller Companies have all significantly increased their allocations to the smallest companies in the market. These trusts all increased their weightings significantly in late 2014 too, during a strong run for this area of the market. In this light we examine the case for micro-cap focussed trusts or those small-cap managers with high allocations to this segment. Positive reasons for taking an allocation to micro caps are the post-GFC valuation gap, the growth potential and the diversification benefits. Negative factors are the lack of specialist options, the size and liquidity issues for professional investors, and the risks in the segment.

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