ASX listed small cap stocks are a great way to diversify your portfolio. Small caps typically have higher growth potential than large-cap stocks because they are earlier in their growth cycle and haven’t been as widely researched by investors. However, it is important to do your research before diving in and invest in the right small cap stocks.
There are plenty of different ways to invest in the ASX Small Cap Index, including directly via ETFs and trusts, indirectly through blue-chip companies with smaller subsidiaries, or via managed funds focusing on smaller companies. Let’s take a look at some of the most popular options for investing in small-cap stocks.
1. Exchange Traded Funds (ETFs)
ETFs are listed on the ASX just like individual stocks. Several ETFs track the small-cap index, including Altrex Small Ordinaries Index Fund and Altrex Small Ordinaries Index Exchange Traded Fund. As with other funds, ETFs allow you to buy into a portfolio of small caps with one trade. If you’re interested in more than one stock, but don’t have enough money to make an investment, then ETFs may be your best option for diversifying your portfolio.
2. Investment Trusts
Investment trusts are also listed on the ASX, allowing you to buy shares in a fund that contains other listed companies. The Altrex Small Ordinaries Index Investment Trust (ASSE) is the most popular investment trust for buying small-cap stocks. Altrex ASSE tracks the ASX Small Ordinaries Index, which contains a broad range of less expensive ASX-listed companies that are listed under 10 or 15 shares. This allows you to buy into a completely diversified portfolio of small-cap companies, rather than investing in just one stock.
3. Australian Small Company Index Fund (ASX-SMF)
The ASX-SMF is listed on the ASX. This index is designed for investors looking for shareholder growth and capital appreciation. The portfolio consists of a wide range of stocks from different industries to capitalize on equity market opportunities and mitigating risk.
4. Specialist Small Company Fund
There are plenty of specialist small company funds that invest in a range of sub-ASX indices, including Altrex Small Ordinaries Index Fund. This fund invests in stocks in the ASX Small Ordinaries Index, and each stock is weighted on the basis of market capitalization. Investors looking for a single small cap stock can either buy shares directly or through these specialist funds.
5. Managed Funds
Managed funds typically include a professional portfolio manager who makes trades on your behalf. The manager will select companies with high growth potential to invest in their portfolio to increase the risk-return ratio of your investment over time. Managed funds may be more expensive than other small-cap investment options, but they can also be worth it if the fund manager makes smart decisions.
Conclusion
As with any investment, it’s important to keep an eye on the small cap stocks in your portfolio to ensure that they are performing well and in line with your expectations. You should also look for ways to diversify your portfolio based on factors such as value, growth, and market capitalization. Small caps present a number of interesting opportunities for investors looking to broaden their portfolios and increase their risk-return ratios. Also keep an eye out for small caps asx news.