When it comes to investing in ASX shares, the small cap and micro cap sectors are usually out of reach for most ordinary retail investors. That’s because these kinds of shares simply don’t have the coverage and analysis available that companies in the S&P/ASX 200 Index (ASX: XJO) enjoy.
This makes doing your research that much harder, confining successful investing in small and micro cap shares to mostly institutional investors. It’s unfortunate because smaller companies can offer some of the best long-term growth investments out there. In theory, the smaller a company is, the more room and runway it has to potentially grow.
There are still ways that ordinary investors can invest in these companies with confidence. So here are 2 such investments that I think are worthy of consideration today if you’d like some easy small cap exposure in your portfolio.
Wam Microcap Ltd (ASX: WMI)
Wam Microcap is a Listed Investment Company (LIC), which means it is a company that invests in other ASX shares for the benefit of its owners. As the name implies, Wam Microcap focuses on the smaller end of the market.
Its mandate dictates that it only invests in companies with a market capitalisation initially below $300 million. I like this company as a small cap investment for 2 reasons: its diversified portfolio of at least 20 small ASX companies, and its stellar history of delivering returns.
On the former, some of Wam Microcap’s current holdings include Marley Spoon AG (ASX: MMM), Temple & Webster Group Ltd (ASX: TPW) and Redbubble Ltd (ASX: RBL). On the latter, Wam Microcap has delivered an average return of 15.9% per annum (before fees) since its inception in mid-2017. As such, I think this LIC is a great investment if you’re after a sprinkling of small cap magic in your portfolio.
Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)
This exchange-traded fund (ETF) from Vanguard is another great investment to consider for small cap exposure. It tracks the MSCI Australian Small Companies Index (as the name implies), which includes around 170 ASX companies from the bottom end of the ASX 300.
As an ETF, VSO offers a low management fee of 0.3% per annum. This fund was hit hard during the coronavirus market crash, with its units still down around 7% year to date.
However, I think the long-term prospects for this investment remain sound. Thus, I think it is a great way to add some easy diversification and small cap exposure to any ASX portfolio.
Some of VSO’s current top holdings include Atlas Arteria Group (ASX: ALX), Altium Limited (ASX: ALU) and Domino’s Pizza Enterprises Ltd (ASX: DMP). If you’d like a passive way to track a large portfolio of smaller ASX companies, then this is a perfect investment for your portfolio.
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited and Temple & Webster Group Ltd. 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 Scott Phillips.
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