I think a little exposure to the small side of the market can be a good thing for a portfolio.
This is because even blue chip companies such as Ramsay Health Care Limited (ASX: RHC) were small caps at one stage.
Anyone that bought Ramsay's shares at that point and held onto them until today will have generated incredible returns.
And while not all small cap shares will live up to their potential, there are a few that I feel have a good chance of doing so.
Three small ASX cap shares worth watching very closely are as follows:
Audinate Group Limited (ASX: AD8)
Audinate is a digital audio-visual networking technologies provider. The key product in its portfolio is the increasingly popular Dante solution. This award-winning audio over IP networking solution is being used widely across the professional live sound, commercial installation, broadcast, and recording industries globally. It distributes digital audio and video signals over computer networks rather than through traditional analogue cables. This is a much more efficient way of doing things and has proven very popular with end users and has led to explosive sales growth.
ELMO Software Ltd (ASX: ELO)
ELMO Software is a fast-growing cloud-based human resources and payroll software company. It provides a unified platform that allows users to streamline processes for employee administration, recruitment, on-boarding, learning, performance, remuneration, compliance training and payroll. It has been a strong performer over the last couple of years and I remain confident it is well-placed to continue this positive form in FY 2020 and beyond. At the end of the first half its annualised recurring revenue (ARR) reached $52 million, which was up 42.8% on the prior corresponding period.
Serko Ltd (ASX: SKO)
Serko is the online travel booking and expense management provider behind the Zeno Travel and Zeno Expense platforms. Zeno Travel provides AI-powered end-to-end travel itineraries, cost control and travel policy compliance to corporate customers. Whereas the Zeno Expense platform allows users to automate and streamline the expense administration function, identify out-of-policy expense claims, and prevent fraud. Serko has been experiencing strong demand for its products in recent years, leading to stellar recurring revenue growth. I feel confident there will be more of the same in FY 2020 and beyond.
