Accompany small / medium sized companies and their value creation through the microcaps

Cybersecurity, renewable energies, e-mobility, decarbonisation, digitalisation, biotechnologies, building renovation, semiconductors, small companies often unknown to the general public: the microcaps represent a highly attractive and truly diversifying investment universe within the listed stocks. The principal driver of job creation thanks to their growth, small and medium-sized companies remain the central focus of different governmental economic policies.

On the financial markets, these support measures are placing the spotlight on the very small stock market capitalisations. While these stocks been a distinct asset class in the United States since the 1970s, we had to wait until the 2000s to see this investment niche emerge as a distinct category in the other regions of the world and there are now microcap indices covering all the developed nations.

Innovative
small / medium-sized companies 

The microcap universe is made up of small, innovative niche players with stock market capitalisations generally between 50 and 500 million euros. Often with family or entrepreneurial shareholders, thereby leading to a better alignment of interests, these companies also generate more growth than the large caps over the long term.

This deep universe is made up of thousands of companies throughout the world. Spread out rather homogeneously between the major economic zones (United States, Europe and Asia), this universe makes it possible to uncover interesting players regardless of the economic context.

The principal
specific qualities
of microcaps 

A highly diversified
universe in
geographical
and sector terms 


Ideal for stock-picking
 

Companies
offering
strong
growth 


A better performing
universe over
the long term 
 

Little
coverage
by the financial
analysts 


Many market
inefficiencies

Weak
correlation
between
stocks 


A less volatile
universe 

Why invest in microcaps?

Gain access to an original
and highly diversified universe 

The microcaps represent an original and attractive investment universe within European and international stocks. Highly diversified in terms of sectors, countries and business models, this universe is less dependent on economic cycles and, even if more sensitive to periods of market stress, shows better ability to rebound, as has been demonstrated in the past.

Benefit from an attractive
risk / reward profile 

Younger and more innovative, the very small listed companies generate earnings growth above that of the large caps over the long term. Investing in microcaps also enables investors to benefit from the weak correlation between companies, thereby leading to lower volatility in portfolios if they are well diversified.

Finance the real economy 

The microcaps are benefiting from support offered by numerous governments. Along the lines of French share savings plans, numerous measures in favour of microcaps have been adopted throughout the world over the last several years, as these companies constitute the leading driver of job creation. Investing in microcaps effectively enables investors to support growing small / medium-sized companies that often are generators of jobs and economic growth.

What are the risks associated with microcaps 

The liquidity (daily trading volume on the market) of microcaps is smaller than that of the midcaps and large caps. On the European microcaps market, only 25% of stocks feature trading of at least 100,000 euros per day. Additionally, even if the overall microcaps universe is less volatile than the large caps, the individual and intrinsic risk of each company can be high.


At Mandarine Gestion, risk control is fully integrated into the fund management process. The liquidity factor is fundamental in the stock-picking. It is for this reason that only those companies with liquidity greater than 100,000 euros per day can be integrated into the portfolio. This liquidity indicator is monitored on a daily basis. Additionally, these two main risks can be managed through an adaptive investment process, with portfolios diversified over a large number of companies with generally equi-weighted positions.
 

How to invest in microcaps? 

In order to help investors gain access to the dynamic and innovative microcap universe, Mandarine Gestion has developed a line of Microcap funds that allows investors to accompany small listed companies with the potential of become the leaders of tomorrow. This product line is made up of Mandarine Europe Microcap, which invests in European microcaps and was the first microcap strategy to be awarded the French SRI Label ISR, and Mandarine Global Microcap, one of the very few strategies in the world investing in international microcaps.

The objective of this line of funds is to enable investors to benefit from the beauty of this universe in the framework of controlled risk thanks to an adaptive fund management process that has proved its worth under all market conditions.

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