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How to Play Small Caps

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    Ken Korngiebel of TW Asset Management explains why small caps are prudent long-term investments.

  • Duration 5:27
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Next guest says -- people are under invested in equities right now especially in small cap stocks and even know it may be a rough ride he -- sense not caps are necessary over the long term in any.

Long term portfolio as well joining us now is Ken -- people TW asset management chief investment officer.

-- you do this every day you invests in small cap stocks -- -- paid off pretty handily for you your fund is up 16% year to date.

But I also noticed at the S&P at 600 small cap index.

Is -- a lifetime high touching it this week when you start to see a lifetime highs and we're talking about 16%.

Gains so far this year in the markets -- -- -- a little top B is there's still money to be had in this sector.

Yeah I think so thanks for me on the show when you take a look at small cap stocks I think you also have to take -- -- consideration.

The earnings in the aggregate that's coming out of the universe.

And so markets go -- highs because companies continue to grow under earn money over time.

The markets have had a strong run since October bottom small cap stocks of outperformed very nicely.

So might make sense for -- small cap stocks the pause here and maybe undergo some profit taking.

I think as long as economy holds together we can see some more appreciation out of the -- Campion of net.

We're seeing some -- topside holdings -- Tara Jones Lang LaSalle Pier 1 Imports -- master playing certain.

Bridal ray the small cap sector real estate semiconductor is.

-- for -- viewers out there -- Is this kind of the way you play small caps as you've taken she used.

Because a lot of them and net paying -- industry cakes are -- certain categories it takes but.

-- -- approach small caps if you're just getting in for the first time.

Well are particularly case we have a six person investment team and we cover a variety of industries and so.

In small cap portfolios the dominant.

Skill that you want to see is individual stock picking.

That's why you see.

-- broad representation of industries is because we're able to find good investments across.

The economic waterfront.

What we're looking for companies that.

Involved in markets that are growing nicely that have good.

Defensible business models and are likely to you outgrow them in the general economy.

-- terrible things let me just piggyback off -- that how would you make that determination.

Because I I think -- the issues with some of these smaller cap names as of their two successful.

-- good thing is maybe they'll be -- but other other than that maybe they'll track competition from others or are is -- something our viewers can.

Kind of look at it's a metric a valuation is or something a key that sort of starts the ball rolling for you guys.

Those are those are good points I think -- where you're always wondered about the small cap company is.

Are they going to be able to grow and what sort of competition they face from larger entrenched companies.

That that may be able to counter with things like Christ -- to defend market share.

And so the things that we look for -- what sort of -- defense syllable.

Characteristics does the business model have.

Revenue growth is very important small cap because that's an indication of whether or not the product or service being offered.

Is really attractive compared to some of the alternatives authority exists and so primarily you want to look at revenue growth.

The -- wanna take a look at the margin structure to see if -- true value added.

In the business model right and then you wanna see good.

There's a blend between revenue growth vs investing for the future -- -- expense.

Absolutely margin growth and I guess some pricing power -- and also very mercurial space so when its hottest super hot as we can see but -- it's not it's not that's why I was curious when our morning meeting.

That you think investors to put this these ideas and their portfolio long term.

I've always kind of played -- is like when you've got 6130%.

Hit the road Jack take the money because when they did they -- pretty hard are you saying right out the volatility.

Well Charles that's I think what you have to do is manage your exposure to -- space is a good point you make.

After big grounds take some chips off the table the problem is market timing in and we think that one of the best ways approach -- space.

Really is -- dollar cost averaging because over time you are compensated for the volatility.

Very quickly can let's get to -- your picks that you recommend for our viewers out there is some small cap ideas that they can pick up scuba today.

Certainly we like -- Jones Lang LaSalle it's one of our larger holdings.

We think the commercial real estate market is not a bad place to be right now there's been limited supply there's a lot of funds looking to invest there.

We like the business model -- levered to an increasing number of transactions as well as.

To the growing asset value whether that's the value -- buildings themselves or the value of these transactions.

And then finally we like the industry structure -- and CB Richard Ellis are -- the leading companies.

And it's -- mean a business it's increasingly more difficult to compete unless you have geographic.

Scope as well as range of services for -- You also microns intact in the last -- -- Scientific Games which makes lottery tickets I guess kind of account sir economic -- to play because of people are behind lottery tickets.

They're probably don't have a job and they're hoping to get their rent paid for -- a -- in the printing of one of those ten -- corn be -- TW asset management thank you very much for being with us today.

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