Quick Take: When Denis Amato began investing some 45 years ago, he started small, using money he earned from his paper route to buy stock.
Today, Amato, portfolio manager of the Fifth Third Micro Cap Value/Adv (MXSAX), invests in very small companies — those with market caps of $300 million or less — a group that he says includes “an awful lot of pretty significant, and substantive” enterprises. The fund itself is also boutique sized with combined assets of about $87 million.
While returns for the five-year-old fund have not been huge, they have outpaced those of similar offerings. Fifth Third Micro Cap Value lost 0.9% last year, while the average small-cap value fund was off 12.5%. For the five years ended in February, the fund returned an average annualized 6.3%, versus just 0.6% for its peers.
The Full Interview:
Denis Amato says Wall Street tends not to track the companies he buys because they’re so small that selling their shares wouldn’t be profitable for big brokerage houses.
“What we find is that this is the sector of the market that is the least efficiently followed,” Amato says, referring to companies with market caps of $300 million or less, which he hunts for in managing the Fifth Third Micro Cap Value fund.
One advantage of owning tiny stocks is that they have the potential to grow rapidly when mainstream analysts start examining and recommending them, Amato says.
A disadvantage of very small companies is that they may be dependent on a single product, or have difficulty obtaining bank financing, Amato points out. Because of that, he prefers businesses with strong balance sheets.