It’s fair to say that most Australian investors are focussed on a very small basket of stocks. In fact many investors only own blue-chip stock which effectively limit their investment universe to about 20 top stocks.
Other investors cast a slightly wider net, yet still focus exclusively on the 200 largest and most liquid stocks contained within the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO).
This concentration creates a huge amount of competition for just a small sub-set of the market. With around 2,000 listed companies there are good reasons to cast a wider net in the search for value and growth prospects.
One fund which focuses on investing in “little known” investment opportunities outside of the S&P/ASX 200 is the Ausbil MicroCap Fund.
Ausbil aims to buy growth stocks at value prices; with each investee company required to have sustainable or growing earnings. The fund boasts an annualised return since inception in 2010 of 43.6%.
Here are three of the largest positions within the fund:
Equity Trustees Ltd (ASX: EQT) – having acquired the ANZ Bank’s trustee business earlier in the year, the group has expanded its scale. The firm enjoys dependable and steady recurring revenue thanks to its administration and mandated investment services. With the stock trading on roughly 12x forecast EBIT and with a yield of 4.5%, the stock continues to look appealing at current price levels.
CSG Limited (ASX: CSV) – having plunged to multi-year lows in 2012, the printing hardware and leasing firm appears to have turned the corner. The group earned 4.5 cents per share (cps) in FY 2014 and paid a dividend totalling 5 cps. With the stock trading at $1.11, this equates to a historic PE and yield of 24.7x and 4.5% respectively.
Hansen Technologies Limited (ASX: HSN) – has been a strong performer over the years with earnings per share rising from 2 cps in FY 2007 to a forecast 9.4 cps in FY 2015. Expectations are for dividends totalling 6.3 cps to be paid in the current financial year. Based on these forecasts, Hansen is trading on a PE of 16.3x and a yield of 4.1%.
One more stock that is yet to be fully recognised…
Searching amongst less followed stocks can be an advantage as there is more likely to be inefficient pricing and under-researched businesses amongst the field of small-cap hopefuls. The above three stocks could be a good place to start, but there is one other stock you really must know!
Motley Fool contributor Tim McArthur owns shares in Hansen Technologies Ltd.