There are few listed investment companies (LICs) on the ASX that have performed as well as WAM Microcap Limited (ASX: WMI) over the past year.
WAM Microcap is the LIC run by Wilson Asset Management that focuses on the smallest shares on the ASX, typically industrial businesses with market capitalisations under $300 million at the time of acquisition.
In August 2018 its portfolio grew by 5.4% before fees and expenses, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 2.9%. Over the past year its portfolio has returned 30.1% before fees and expenses, outperforming its benchmark by 7.8%. This is a solid result.
Small caps potentially offer the biggest returns because they are often under-researched by the market, leading to lower valuations, and the small size means they can grow many times bigger before they hit a growth ceiling.
WAM Microcap has achieved these strong results whilst also keeping a double-digit level of cash on hand for protection and opportunities. At the end of August 2018 it had 13.7% of the portfolio as cash.
The investment team attributed some of August's strong performance to Specialty Fashion Group Ltd (ASX: SFH), a company which is selling all of its retail chains except City Chic. Pleasingly, City Chic delivered comparable same store sales growth of 13% – quite the performance for a retailer. Some of its other top holdings currently include Adairs Ltd (ASX: ADH) and Baby Bunting Group Ltd (ASX: BBN).
Foolish takeaway
WAM Microcap is a good way to get diverse exposure to small caps if you're not sure about doing it yourself. I think over a 10+ year timeframe it will deliver very pleasing results.
It currently offers a (regular) grossed-up dividend yield of 3.9%, plus the special 2 cents per share dividend. It's trading at a decent premium to the NTA, but not as high as some of the other WAM LICs. I'd be happy to buy a parcel today, although I hope it trades at NTA at some point in the future so I can buy at a more attractive price.
