While the world’s major equity indices are dominated by a handful of American giants, microcaps offer an underexplored landscape rich in niche sectors and long-term growth opportunities. Augustin Lecoq, manager of the Mandarine Europe Microcap and Mandarine Global Microcap funds, explains how these smaller companies can deliver performance and diversification over time.
Microcaps often represent less than 2 per cent of global market capitalisation, yet they account for nearly half of all listed companies worldwide. “Every market niche therefore offers opportunities to capture”, says Lecoq. These firms are typically highly specialised and frequently overlooked by mainstream investors, but their growth potential can be significant. One microcap followed by Mandarine reached a valuation of 2 billion euros before being acquired by PepsiCo, illustrating what is possible within this segment.
At Mandarine, selection is driven by equity characteristics and liquidity rather than size alone. “Our microcaps must generate at least 100,000 euros in daily trading volume to ensure the necessary liquidity for investment”, the manager explains. Unlike large caps, the microcap universe remains largely untouched by ETFs and passive strategies, creating a favourable environment for active management.
Geographical diversification is a key advantage. The Mandarine Global Microcap fund includes roughly one quarter American companies, one quarter European, one quarter Japanese and the remainder from other developed markets. Japan alone represents 27 per cent of the global microcap universe. “For a Japanese entrepreneur, going public is a pivotal moment and a symbol of recognition and credibility”, Lecoq notes. This market offers unique access to innovative and specialised firms that are rarely found elsewhere.
Microcaps span an exceptionally wide range of niches. Examples include fan club platforms for artists in Japan, ultra-pure water production for semiconductors in France, mining and rare earths in Australia, electrical connectors in Italy, fire-fighting cannons in Austria and Sweden, and industrial innovators such as EVS in Belgium. “These companies continue to invest in their businesses even when smaller competitors slow down or withdraw”, the manager says, highlighting their resilience.
Investing in microcaps does come with higher volatility than large caps, which makes diversification essential. The Mandarine Europe Microcap and Mandarine Global Microcap funds are diversified across 200 and more than 300 companies respectively, with low position weights of 0.3 to 0.5 per cent to ensure that performance does not rely on a handful of outliers. “We aim to deliver steady and consistent outperformance without sector or geographical bias”, Lecoq insists.
Like ETFs, both funds offer daily liquidity. However, “there is no ETF capable of replicating our two universes, so investors must typically go through active management”, the manager adds. The Luxembourg fund structure makes it possible to manage large asset volumes while maintaining liquidity and accessibility for private investors.
Microcaps are often viewed as risky, yet in reality they form a complementary investment universe alongside large caps. Their inefficiencies, geographical and sector diversity and growth potential make microcaps a strategic tool for long-term performance and diversification. As Lecoq summarises: “Integrating microcaps into a global equity allocation means accessing a rich and often overlooked universe that can deliver growth and diversification for investors.”
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