Just how small are small cap companies?  

One of the questions we get asked often is about the size of the companies that we can invest in with the Montgomery Small Companies Fund. So, I thought we would take a moment to have a look at the S&P ASX Small Ordinaries Index so we can understand some of the names in the market that could form part of our fund and investment universe. 

For example, one of the larger companies in the ASX S&P Small Ordinaries Index is Auckland International Airport; a well-known global infrastructure stock. This business owns and runs the Auckland International Airport (ASX:AIA), at the time of writing, the market cap of the organisation was approximately $10.9 billion, with projected revenue expected to exceed $800 million in FY25, which is far from a small company.  

To jump into this a little deeper, I also wanted to give some examples of household names, many of which you would drive past on your daily commute. Take, for example, Rebel Sport, BCF, Macpac or Supercheap Auto. All of these brands reside in a business called Super Retail Group (ASX:SUL). This is a business with headline revenue of $3.8 billion across its brands. It has a market capitalisation of approximately $2.84 billion. 

To give this further context, more than 130 companies in the S&P ASX Small Ordinaries index have a market cap of $1 billion or more. The average market capitalisation of the index currently sits at just under $2 billion per company.  

At times, there is a perception that by investing in small companies, you are investing in very, very small companies, and this is simply not the case. Companies like Boral Limited (ASX:BLD) and Harvey Norman (ASX:HVN) all form parts of this index. They are all household names, I am sure once you read this, you will see more of the Boral Limited cement trucks and semi-trailers running down the highway or around your local area.  

There are companies on the smaller end of the spectrum in this index; at the tail end, they have a market cap of approximately $200 million, but there are many more that are large, stable, and well-established businesses.  

What we aim to do in the Montgomery Small Companies Fund is to build a well diversified portfolio of the best quality names we find in our investment universe. Presently, we have 48 stocks in our portfolio that we think represent the best opportunity for our investors. These names have an average market capitalisation of $3.06 billion, with an average revenue of $870 million p.a. On average, these businesses are strong names, with solid revenue, significant market capitalisation and are very liquid, allowing us to have portfolio flexibility.  


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