3 things to know when investing in microcaps

With strong returns over the past 12 months, it’s easy to be drawn toward microcaps with the potential of overlooking the risks. Mason Willoughby-Thomas, Portfolio Manager of the Ausbil MicroCap Fund, shares three checks that he runs to reduce the risk of investing in potential portfolio bombs. "One of the key issues for us is capital structure … For companies that have excessive levels of gearing we would see that as an initial red flag, particularly if the level of gearing was inappropriate for the nature of the business." The impact is a reduction in the company's financial flexibility, which can mean even small disruptions can become major issues for the stock. In this short video he expands on this points and highlights two more red flags investors should have on their checklists.

Livewire gives investors direct access to the stock ideas, research and exclusive insights of hundreds of Australia’s leading investment professionals.
To access more exclusive market content and to receive the top three insights each day, register for FREE at http://www.livewiremarkets.com