I believe that WAM Microcap Limited (ASX: WMI) could be one of the best ASX shares to own on the ASX.
Small caps could be the best place to find those opportunities that most other ASX investors aren't looking at. That means some of those small businesses, which potentially have long-term growth runways, are trading at lower valuations than their large counterparts.
But it's very hard to know which small caps to own. Investing in small caps is more specialised than just picking some of the most well-known shares on the ASX. Understanding the balance sheet is even more important. Knowing if management are good-quality or not is extremely important.
Unless you can commit full-time to researching small caps it's hard to find those opportunities yourself, which is why I'm comfortable leaving the investing to a high-performing investment team at a listed investment company (LIC) like WAM Microcap.
One of the mains reasons people don't want to think about many LICs is that they charge fees. I think fees are definitely worth it if they can produce outperformance.
Since inception in June 2017, WAM Microcap has produced an average return per annum of 23.7%, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 12.3% per annum. These numbers are before fees, expenses and taxes.
Past performance is not a guarantee of future performance, but it shows the ability of the WAM Microcap team to pick market-beating shares.
WAM Microcap needs to stay quite small so that it can keep investing the appropriate amount into small caps like Australian Finance Group Ltd (ASX: AFG) and City Chic Collective Ltd (ASX: CCX).
As a LIC it has the ability to pay a steadily growing fully franked dividend (and special dividends) from the growing profit reserve. This is great for income investors.
Foolish takeaway
WAM Microcap has an ordinary grossed-up dividend yield of 4.2% and it's trading at a slight premium to its underlying assets at October 2019. Small caps have performed strongly recently, so I'm waiting until small caps pull back a bit – but I'll definitely be looking to buy more shares when that happens.
