How a handwritten letter can lead to success in the small-cap space

Personal touch can make a big difference

The theory of the ‘small-cap premium’ is well known: overtime small caps tend to outperform large caps because they have higher earnings and cashflow growth, although this only holds true over the mid-to-long term.

Consequently, investors need to truly understand and analyse the underlying, structural growth drivers of a company, discarding the noise of unpredictable short-term factors. To do this, financial data reported by the company and management meetings are crucial sources of information. However, to obtain both often proves more challenging for micro and small cap portfolio managers than for their large cap colleagues. Portfolio managers usually access research reports or the company's investor presentations. Then they verify analysts' expectations with their own in order to gauge ...