From Mistake to Marketing Masterpiece
There has been much discussion on how Coca-Cola became so dominant. Could it be that it was all from a mistake?
3 min read
Heartland Funds published this white paper on microcaps earlier this year with some good historical data points on the microcap space. The Heartland Value Fund (HRTVX) is a value based micro-smallcap fund. The fund’s average market cap in the portfolio is $472 million. Historical Micro-cap Returns Over time, micro-caps
Heartland Funds published this white paper on microcaps earlier this year with some good historical data points on the microcap space. The Heartland Value Fund (HRTVX) is a value based micro-smallcap fund. The fund’s average market cap in the portfolio is $472 million.
Historical Micro-cap Returns
Over time, micro-caps have outperformed equities in all other capitalization ranges. In our view, this suggests that any investor whose portfolio allows for micro-cap exposure would be wise to seek it. The rather dramatic chart below shows the long-term outperformance of micro-caps versus other small-cap, mid-cap, and large-cap stocks. The data reflects the total return of one hypothetical unit if it were invested in each capitalization range, from 1926 through December 31, 2012. Not surprisingly, micro-caps exhibited greater volatility than other cap ranges.
Many small-cap managers tend to gravitate toward the larger end of the market-cap spectrum, where information and liquidity are more readily available. In the micro-cap range, information is scarcer and liquidity less abundant. We believe most small-cap equity managers stay away from micro-caps for these reasons, which helps explain why they behave differently than larger small-caps.
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There has been much discussion on how Coca-Cola became so dominant. Could it be that it was all from a mistake?
In 2000, Intuitive surgical raised $46 million in its IPO. In 2001, ISRG hit a low of $131 million market cap, and today is a $70 billion market cap. ISRG stock has risen 9,800% since its IPO.
An alternative lesson to draw from his study is that microcaps are fine but nanocaps are the ticket to wealth; you just have to be poor enough to buy them.