HomeHome SearchSearch MenuMenu Our productsOur products

Go for penny shares as small caps prove their profit power!

by , 25 February 2013

It's no wonder the mid-to-large cap sector gets the most investor interest. It has more liquidity and therefore more analyst coverage, which is what drives most investments. But by taking matters into your own hands and doing your own research, you can soon see profits from the small caps sector. Here's what you need to know…
The small cap sector delivered 28% in returns, including dividends, last year, reports Moneyweb.
 
And the small cap sector, which is filled to the brim with penny shares, is further well positioned for a ‘return to favour’ as investors find it more difficult to find value in the mid-to-large cap sector, which has run hard in the last few years.
 
A reason for this is that many of these larger companies are no longer focusing on company innovation
 
So if your investment strategy is purely focused on the mid-to-large cap sector, you run the risk of ‘loss of innovation’ causing your investments to lose money. 
 
Here’s why small cap shares will give you more bang for your buck
Many of the companies within the small cap universe, on the other hand, “are well positioned for growth with more conservative costs bases, a sharp focus on areas of competitive advantage, more disciplined capital allocation and stronger balance sheets,” says Vanessa van Vuuren, small cap fund manager at Sanlam Investment Management on Moneyweb.
 
That’s why it’s a great time to invest in penny shares.
 
But what exactly is a small cap share?
Francois Joubert, Chief Investment Strategist for Red Hot Penny Shares, explains you should invest in “the smallest, most innovative, potential-packed companies out there… Growing companies that haven’t yet fully left the ground but that could be right on the verge of a huge profit surge”.
 
Moneyweb adds that small cap shares (which includes penny shares) are technically companies whose market capitalisation is less than R2.5 billion – though many of the companies listed on the JSE’s small cap index are bigger than this. 
 
So ultimately, it’s up to you to do your homework before investing.
 
It comes down to finding one that has a combination of constrained stock liquidity, limited research coverage and market depth.
 
Fund managers, with billions to invest each year, have no choice but to stick with shares of big companies.
 
But Joubert says in MoneyMorning you can take matters into your own hands, save yourself an annual fee, and buy penny shares, which have historically been shown to make the most money. 
 
Follow Joubert’s advice and you’ll soon see a profit from the blossoming small cap market!


Go for penny shares as small caps prove their profit power!
Rate this article    
Note: 5 of 1 vote

Related articles



Related articles




Trending Topics