It is harder to identify ‘hidden gems’ among stock market tiddlers, professional investors say

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It is becoming harder to identify ‘hidden gems’ among micro cap stocks, according to a survey of wealth managers, fund managers and other institutional investors.

Six out of ten of those surveyed said it was harder to find hidden gems among the smallest listed companies due to shrinking coverage from brokers.

In recent years, the level of coverage of the micro-cap market by brokers and research houses has fallen, and 22% of professional investors in the UK expect this trend to continue over the next 12 months, while 16% anticipate this situation could improve.

As a result of micro-cap stocks receiving less attention from brokers and analysts, 35% of professional investors in the UK expect the cost of obtaining information on the sector to increase over the next three years, and just 28% expect this to fall.

Although micro caps are trading at a significant discount to the wider small cap universe, 16% of UK professional investors expect this to increase over the next 12 months.

The survey, of 45 professional investors based in the UK who collectively manage $140bn in assets under management, was commissioned by MBH Corporation PLC (FRA:M8H, OTCMKTS: MBHCF), the diversified investment holding company, which acquires well-established micro-cap and small sized enterprises across multiple geographies and sectors. 

Callum Laing, CEO of MBH, said: “Since the Coronavirus crisis started, some of the best performing individual stocks around the world have been micro caps. However, given the limited level of coverage many of these receive from brokers and analysts, most investors won’t have heard of many of these companies. 

“Our research suggests that the level of coverage of micro-caps could fall further, and this will make it even harder for investors to identify ‘hidden gems’ in the sector.”

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