The fund recorded a return of 64.2% YTD in 2022, compared to -5.8% for the S&P 500 Index
What are microcap stocks?
These are typically stocks with a market capitalization of less than $500 million. Since these stocks are too small for most professional investors, there is very little competition when it comes to investing in them. There are thousands of microcap stocks, and many do not even have a single analyst covering them. For investors willing to do their homework, many microcap stocks can be found that are not only undervalued but that are not riskier—in terms of the possibility of suffering a permanent loss—than many mid-cap or large-cap stocks.
Benefits of investing in microcap stocks
There is less competition
As noted, there is much less competition when it comes to investing in microcap stocks. That’s largely because most professional money managers have too large assets under management to be able to even consider investing in micro caps. This creates a situation where if an investor is willing to do their homework by searching through thousands of microcap stocks, a few hidden gems can be found with the potential to far outperform the market.
They frequently outperform the market
For an investor who does their homework, microcap stocks can be found that are more undervalued than nearly all mid-cap and large-cap stocks. Some microcap stocks are undervalued relative to current asset values or current earnings, whereas many microcap stocks are undervalued relative to future growth potential. Since future growth is simply a component of value, either category can prove lucrative for a studious and patient value investor.
Risks of investing in microcap stocks
Sometimes information is hard to find
Some microcap companies do not give very much information to potential investors. If a microcap investor, after extensive research, is not able to glean enough information to make a rational investment decision, then they should not invest. Given that there are thousands of microcap companies to pick from, there is no need to invest without sufficient information.
Volatility is not the same thing as risk. The only real risk for an investor is the possibility of suffering a permanent loss of capital. However, many investors cannot stomach the high volatility associated with some stocks. Since microcap stocks, on the whole, can be quite volatile, it’s not an area that is suitable for all investors.
How Boole Microcap Fund is helping investors grow their money
The Boole Microcap Fund specializes in a quantitative deep value investment strategy focused on microcap stocks. These stocks offer attractive returns for investors willing to stay the course for three to five years. The founder, Jason Bond, has a master’s degree in Economics from the University of Pennsylvania and taught Managerial Economics and Investments at Seattle University. He draws from his rich background as an analyst and investment advisor to manage the fund.
Boole Microcap Fund strategy to produce market-beating performance
The Boole Microcap Fund is committed to performing better than the S&P 500 Index by at least 5% per year. Likewise, the fund is designed to beat the Russell Microcap Index by at least 2% per year. In order to do this, the fund relies on the following investment strategy:
- The fund invests systematically in the most undervalued microcap stocks. The main investment criterion is how undervalued a given stock is relative to the net asset value or relative to normalized earnings.
- The portfolio is concentrated on the best ideas. Typically, the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). This will boost performance over time.
- The fund has no constraints in terms of sector weightings. The fund invests in the most undervalued stocks without paying attention to sector weightings. This will boost performance over time.
Here is the Boole Microcap Fund’s performance since inception (June 9, 2020):
|Boole Microcap Fund||Russell Microcap||S&P 500 Index|
|2022 net return ||64.2%||-6.6%||-5.8%|
|2021 net return||42.0%||18.3%||28.8%|
|2020 net return from inception ||21.1%||31.7%||16.3%|
|Compounded annual return (net)||41.3%||13.3%||12.2%|
|Overall gain (net)||182.3%||45.5%||41.2%|
 2022 net return is through March 24, 2022.
 2020 net return is from inception June 9, 2020.