The global small companies space

Let's take a closer look at smaller global companies. The "small-cap" market segment is interesting and attractive for many reasons. But it rarely gets a mention in the media.

5 interesting facts about global small companies

• The global small companies' segment is typically under-owned by investors even though they make up 92% of entries on global publicly listed markets. That leaves just 8% of listed companies in the segments known as 'large' and 'mid' caps. 

• For a small global company to qualify, its market capitalisation is generally between $US300 million to $US2 billion.

• Due to the sheer number of listed small companies, (around 50,000 globally), research and due diligence can be irregular or completely absent. This means there are countless opportunities to get a good return on your investment. And those in the know revel in the potential of this segment. 

• Small companies are not 'start-ups' or 'micro' companies. Their business models have been proven by a well-received product and a diversified customer base. These are companies that are well on their way to building a strong franchise with an increasing balance sheet and consistent cash flows. 

• Small companies generally provide consistent, above-average revenue and increased earnings. Over time they can give a healthy return, delivering good rewards to shareholders. 

What to look for in a small company.

Small companies have survived the uncertainties of the 'start-up' phase. However, a focus on the quality of a company is still important. That's why we recommend a strong emphasis on the following: 

• A solid balance sheet with low debt 

• Ongoing increasing revenue 

• A quality management team 

• Participation in an industry experiencing sustainable growth 

• A broadening share of the market 

It's all about diversification.

For a fund to be successful, it must reduce risk through a good mix of investments across countries, continents, sectors and industries. The most experienced fund managers hold up to eighty small companies, diversified across countries such as the US, the UK and Canada, regions such as Europe and Eastern Europe, and continents including Asia and Australia.

Industries often found in small company portfolios are healthcare, transport, food and beverage, information technology, household and personal products, communications and financials. 

 The global small companies' opportunity

You'll often find that investors over-commit to large-cap stocks due to the familiarity of big names and industries, and the perception of lower risk. Investing in small companies can be a bumpier ride than investing in larger companies. However, statistics show that performance can outweigh volatility if you take a medium to long-term view, making small companies' an excellent segment to invest in. 

Wouldn't it be rewarding to invest in a company from its beginnings as a small company and watch the share price grow!