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Factor Investing in Micro & Small Caps

Treasure Hunting in the Wild West of Equity Markets

Nicolas Rabener
10 min read
8 Oct 2018

SUMMARY

  • Micro caps are commonly perceived as highly risky, but potentially also highly rewarding
  • Smalls caps generate more attractive risk-return ratios than micro caps on index level
  • Focusing on factors improves risk-adjusted returns across market cap segments

INTRODUCTION

FAANG stocks like Apple (AAPL) are covered by dozens of highly trained financial analysts. Galaxy Gaming (GLXZ), on the other hand, is followed by exactly zero analysts.

Galaxy Gaming who?

Galaxy Gaming, which produces table games and betting platforms for the casino industry, has a market capitalization of $50 million and trades over the counter (OTC). Unfortunately for such companies, analyst coverage of US stocks has been steadily decreasing since the 2000s due to tighter Wall Street regulations, among other factors.

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