Micro-caps get a bad rap. Unfortunately, there are a lot of questionable businesses in this realm exploiting less sophisticated retail investors. However, every company starts small and the micro-cap space also includes its treasure of good companies. Below are 5 reasons to consider micro-caps:

1. Superior Returns

It’s well known that the micro-cap market is less efficient. There’s less analyst coverage and institutional involvement. Studies show micro-caps historically offer higher returns than large-caps. There’s obviously more growth potential. Also, there’s a weak correlation between micro-caps and large-caps which can help diversify a portfolio.

2. Management

The key decision makers in companies always matter, but in the micro-cap space management tends to have more influence on business outcomes and larger ownership stakes. Also, micro-caps tend to have easier access to management for investors.

3. Easier to Analyze

Micro-caps compared to large-caps have less complicated operations and therefore tend not to have extremely complex financial statements like many large-caps. Investors are therefore more able to grasp the business and to do due diligence on their own.

4. Alternative to Private Equity

Micro-caps can rival private equity returns while offering some distinct advantages. Being public means more transparency and liquidity. Valuation is determined by the market every day. Also, the fees investors in micro-caps pay tend to be much lower than what private equity investors pay.

5. Helps You See The Future

Big companies were small companies at some point. It’s important for investors not to neglect small emerging companies that one day could reshape or dominant their industry. Small companies are nimble and innovative. Investors need to understand and pay attention to this wealth creation process. A good way is to consider micro-caps.