We answer all your questions regarding small-cap investing in this free downloadable ebook. - What is small cap investing? - What are the characteristics of small cap investing? - How do I choose a small cap manager? - Why invest in a managed portfolio? - What does market timing have to do with anything? - What investment style REALLY works for small caps?

1. small
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GLENNON CAPITAL

2. C O N T E N T S
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characteristicsofsmallcap
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whyinvestinamanagedportfolio
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3. S M A L L C A P I N V E S T I N G
Small caps are companies that are listed on the Australian
Securities Exchange (ASX). The term “small cap” refers to the
small market capitalisation of the companies. These are not
well know companies like Telstra and Woolworths and many
investors would never have heard of these businesses.
The most common way of measuring the performance of
small caps is the S&P/ASX Small Ordinaries Index, which is an
index of the next 200 largest companies following the 100
largest stocks. Usually these are companies with market
capitalisation of less than $2.5 billion.
Outside of the Small Ordinaries are the “micro caps.” These
are even smaller companies and are generally below $100
million in market capitalisation.
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[ D E F I N I T I O N ]
G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G

4. O F S M A L L C A P I N V E S T I N G
The daily turnover in small cap stocks is lower than larger
companies. This liquidity issue means that there are greater
risks involved with investing in small caps - short term traders
have often been hurt by this lack of liquidity. Therefore, small
caps lend themselves to longer term investing.
Fund managers can often find liquidity by working with stock
brokers to find buyers and sellers of shares in larger volumes.
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C H A R A C T E R I S T I C S
G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G
LIMITED LIQUITY
Unlike the top 100 companies, small companies are not as
well covered by research analysts as the larger companies.
Consequently, there are more opportunities to discover
attractive investments at discounted valuations.
There are also more opportunities to fall into value traps,
companies with highly volatile earnings and fraud. This
means small company investing is best left to a specialist.
LIMITED RESEARCH
C O N T I N U E D . . .

5. C H A R A C T E R I S T I C S O F S M A L L C A P I N V E S T I N G
Smaller companies are often able to grow quicker than larger
companies; they generally start with a smaller base. This
growth can mean that quality small companies can become
large companies over time while investors benefit from strong
returns.
Investors need to be careful however: expectations of growth
can sour quickly and assessing the likelihood of the company
achieving its objectives is critical.
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C O N T I N U E D . . .
G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G
GROWTH

6. A S M A L L C A P M A N A G E R
H O W T O C H O O S E
There are a few basic considerations that need to be
considered when choosing a small cap investment manager:
Investing in small companies is as much about knowing the
management of companies as it is about financial analysis.
Avoiding mistakes is as important as selecting good
companies. There are many instances where a company may
appear cheap, but management may not have the interests of
shareholders in mind.
EXPERIENCE
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G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G
C O N T I N U E D . . .
One of the difficulties with investing in small companies is
liquidity. The more money a manager has the more difficult it
is for that manager to do well. It is widely accepted that once
a manager has more than 1% of the index, their investment
universe becomes constrained.
FUNDS UNDER MANAGEMENT

7. H O W T O C H O O S E A S M A L L C A P M A N A G E R
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C O N T I N U E D . . .
G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G
The investor needs to be comfortable with the basic
philosophy of his manager. This ensures that when times are
tough, the investor does not leave the manager at precisely
the time when opportunities for that manager are most
plentiful.
PHILOSOPHY

8. M A N A G E D P O R T F O L I O
W H Y I N V E S T I N A
The smaller a company, quite often the greater the ability for
a company to grow at rates of growth faster than the broader
economy. Capturing this opportunity is not simple however.
Risk needs to be managed as returns are achieved.
POTENTIALLY HIGHER GROWTH
A managed small cap portfolio provides retail investors with
diversification to their mostly large cap holdings. Because
prices of small cap stocks are highly volatile, a small cap
manager can respond to these price movements and take
advantage of opportunities that present themselves.
A small cap portfolio should be managed by a full time
professional manager because the environment can change
rapidly. Small companies are more vulnerable to company
specific and macro variables. Their revenue streams may be
more concentrated on a particular client while abrupt
changes in management may have a big effect on the
company’s prospects.
SUPERIOR MONITORING
UNIQUE OPPORTUNITIES
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G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G

9. O F M A R K E T T I M I N G
T H E I M P A C T
Historically small companies have had a tendency to
outperform larger companies in periods when the economy is
growing or recovering from a slow down. However, it is very
hard to time market movements.
As opposed to trying to forecast broad market movements, it
is usually preferable to select individual quality stocks that
have the ability to grow earnings over time. That is how small
companies become large companies over time.
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G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G

10. I N V E S T M E N T S T Y L E S
D I F F E R I N G
Quite often one manager’s style will suit a certain set of
market conditions resulting in favorable returns for those
conditions. Selecting the manager with the best immediate
past performance may result in continually selecting
managers who will be out of favour for the immediate future.
This can be likened to shutting the stable door after the horse
has bolted.
For example, managers who were overweight small
technology companies in the ten years to 2000 would have
outperformed, while the manager who was overweight small
resources during that time would have underperformed. But
if the investor switched to the technology-biased manager
after this period of strong performance he or she would have
been sorely disappointed with future returns.
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G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G

11. G L E N N O N C A P I T A L
A B O U T
Glennon Capital was founded in 2008 by Michael Glennon.
Previously, Michael worked with some of the best
institutional small company fund managers in Australia, and
in 2007, he was recognised for his achievements and received
the IMCA Money Management Fund Manager of the Year
(Small Cap) Award.
Michael founded Glennon Capital to offer specialist small
company investment management to high net worth
individuals and family offices, as well as through selective
platforms for clients with less than $1 million to invest in their
portfolios.
Today, our flagship fund Glennon Small Companies Limited
(ASX:GC1) opens up the investment opportunity for all. GC1’s
Initial Public Offering was completed in August 2015 and GC1
is now a listed investment company that is traded on the
Australian Securities Exchange (ASX).
We are proud to be recognised for co-investing with clients in
all portfolios – an important feature which ensures that our
values and principles are aligned with those of our clients.
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G L E N N O N C A P I T A L | S M A L L C O M P A N Y I N V E S T I N G

12. C O N T A C T
address
level 17
25 bligh street
sydney nsw australia
phone
(02) 8027 1000
email
info@glennoncapital
website
glennon.com.au
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