As the economy moves into the post COVID-19 recovery phase, UBS Microcap Fund Portfolio Manager Joel Fleming expects microcap companies to be an important contributor to the recovery, with many smaller firms driving high levels of growth as they take advantage of the lasting changes caused by the pandemic.

There are a large number of common misconceptions about the contribution made by Australia’s smaller firms to the domestic economy. Some of Joels’s favourites include:

  • “Micro companies are largely in retail and service sectors and employ relatively few people in comparison to larger firms”
  • “Micro and small companies tend to not be profitable. Profits in Australia are driven by large firms in the mining, banks, supermarket and health care sectors”
  • “Micro companies pay small dividends and have low operating margins. Investing in the space is all about capital growth”
  • “Earnings growth for Micro companies are much more volatile than Large Caps”

Though many people subscribe to the view that micro companies make only a token contribution to national output and economic growth, the data tells a very different story. Micro firms – defined as having less than 5 employees – and their small company (less than 19 employees) counterparts employ 44% of the Australian workforce, contribute 48% of corporate profits and generate 34% of Australia’s economic output.

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