The ETF effect
This week I’m going to tell you the secret to supercharging your returns with small caps.
This has led to us generating returns in the realms of 10-fold on our initial investments. I’m talking the, Macquarie Technology (MAQ), founded by the Tudehope brothers, the Singapore telco Tuas (TUA) founded by the enigmatic David Teoh, Bill Beament’s Northern Star (NST), or Jake Klein’s Evolution Mining (EVN), Anthony Scali’s Nick Scali (NCK). Get full online access to our dashboard today.
Being market agnostic
This means whatever you know who says about tariffs, you can set your mind at ease. The big returns are not reliant on what the market does.
Founder led stocks
You might be guessing from the stocks I just listed whether the secret is being founder led. I do like that trait, I don’t deny.
Quality Small Companies
But one of the stock’s we cover in the small cap report this week, Gentrack (GTK), the software specialist in billing for utilities and airport information systems isn’t founder led. This stock has increased over 600% since we recommended it in mid-2022 and that’s after its 30% in recent months.
Tesla has benefited from this secret. Why? Because it was a small cap once (by the US definition). Tesla’s share price went from less than US$100 in 2020 to $400 and with a market cap of well over $1tn in late 2021.
Market power is different from investor returns and the returns I’m talking about eclipse Tesla. That’s because you’re buying from a smaller base.
The X factor here is the ETF. They were worth nothing 20 years ago and in the past 10 years have come to represent close to half of all turnover.
Small Caps trade on valuations close to fundamental value, but then when the ETFs come in, the buying is indiscriminate. What supercharged Tesla’s shares was its inclusion into the S&P500 Index. These passive funds simply buy based on weighting in the index. Fundamentals don’t come into the equation.
Fund managers are running around looking for the next stock that’s going into the S&P/ASX 300. But here’s the thing, they’re performance is monitored every three months so they don’t have the patience.
We do. Plus, we get the added bonus that if they don’t get into the 300, they’re in line to getting taken over. Why, because corporates, whether they’re private equity or industry competitors, don’t want to pay stupid prices.
At under the radar report we’ve got the tools you need to buy a portfolio of stocks on the cheap that can get taken over and better still, go into the index. Next week we cover off on all our stocks in the research rundown. If I was you, I’d check it out.
