Micro Caps Offer a Window To Emerging Growth
Q&A that explains the advantages of Micro Caps and the role they can play in asset owners’ portfolios.
Amid a tenuous global economic landscape, growth opportunities are likely to be at a premium. The immense upside prospects and realized alpha of micro caps make these high-growth companies at early stages of development potentially attractive investments for asset owners.
Interest in the vast and underexplored micro cap universe is expanding as investors look for differentiated sources of alpha at attractive prices:
Equity strategies that offer active management, diversification, and built-in risk mitigation can take advantage of potential opportunities in the less efficient micro cap segment:
The micro cap universe has thousands of companies with limited information, making it virtually impossible for comprehensive coverage by fundamental analysts.
Quants can quickly and efficiently synthesize vast amount of noisy data to confirm its validity and identify outliers.
Risk management can be embedded in portfolio construction, systematically incorporating portfolio constraints and anticipating transaction costs and trading liquidity.
We believe PGIM Quant’s proprietary models and comprehensive portfolio construction process are particularly effective in micro caps, which behave differently than other strategies:
1 Center for Research in Security Prices (CRSP) monthly data from Jan 1926 – Dec 2021