Your instant 5 share small-cap portfolio

Investing in small-cap shares can be a useful diversification tool as it often provides investors with exposure to industries or businesses that are not typically represented by the ASX’s large cap shares.

Small cap shares also offer the potential for huge returns, but also carry more risk, so it might be a good idea for investors to spread their money across a number of different shares instead of focusing on just one or two companies.

With that in mind, here are five small-cap shares that investors could use as building blocks for a small-cap share portfolio:

Vita Group Limited (ASX: VTG)

Vita Group has delivered exceptionally strong earnings growth over the past few years and the continual innovation of new communications products means the company is well placed to continue on its positive growth trajectory. The shares are currently changing hands at 23x earnings, which isn’t too expensive when you consider Vita Group’s track record and growth prospects.

Ainsworth Game Technology Limited (ASX: AGI)

The poker machine maker has suffered from declining sales domestically over recent years, although this has been largely offset by robust growth from its international operations. With the help of its new major shareholder, Novomatic, Ainsworth should be able to fast-track its international growth plans and begin to kick-start earnings growth once again. The shares offer reasonable value, currently trading at 12x earnings and offering a dividend yield of 4.8%.

Tassal Group Limited (ASX: TGR)

Tassal’s recent move into the seafood market through its De Costi acquisition hasn’t quite lived up to expectations just yet, although this hasn’t changed the company’s longer term story. Consumption of salmon and seafood has been trending higher in recent years as consumers shift to healthier food options and this trend is expected to continue for many years to come. Currently trading at less than 12x earnings, I think Tassal offers a nice trade off between risk and reward.

APN Outdoor Group Ltd (ASX: APO)

Shares of the outdoor advertising company have crashed more than 40% on the back of a small profit downgrade, although this may have created an attractive buying opportunity for risk tolerant investors. APN Outdoor’s business model is far more attractive than traditional advertising businesses and there is a huge amount of scope for the company to expand its reach through further rollouts of digital billboards and screens.

Nearmap Ltd (ASX: NEA)

Nearmap’s expansion into the US market has been a little underwhelming so far and investors will expect the aerial imaging company to begin to make progress on its expansion strategy over the next 12 months. If the company can achieve this, I believe the shares have the potential to trade significantly higher from here when considering that Nearmap’s market capitalisation currently stands at only $180 million. Investors should keep in mind, however, that the shares can be quite volatile and are only suitable for those comfortable with a higher than average risk tolerance.

Are you looking for smart ways to manage your exposure to risk? Why not learn from the best...

How 1 Man Made 100x His Money After 50

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

Motley Fool contributor Christopher Georges owns shares of Ainsworth Game Technology Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.