That indicates the need to close to new clients at somewhere below that limit, to allow for capital appreciation of existing holdings. When the ceiling is reached, the manager needs to return capital to clients. Like the management of the niche companies that are found in this capitalization size, the micro cap portfolio manager needs to concentrate on maximizing returns for his clients, rather than enhancing the growth of his firm. The U.S. has benefited from 18 years of benevolent energy prices, world peace, and a superb economy. Clearly, there is interim risk from these levels.
Micro caps provide true diversification in an era of closet indexing and style drift.
Of course, no one knows whether any sort of market debacle is imminent. Many investors own small caps to exploit inefficient markets. However, micro caps tend to be even more advantageously inefficient, with an average of less than two analysts per company. Those who have followed this course in the past half-dozen years have been rewarded with high returns at relatively low risk. All information contained herein is for informational purposes and should not be construed as investment advice.