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From the editor

This article appeared in the October 2014 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

Highlight themes in this month's Investor Update.

Photo of Tony Featherstone By Tony Featherstone, editor

Welcome to the October issue of ASX Investor Update. This issue has special themes on small and micro-cap stocks and portfolio asset allocation.

Wealth Within's Dale Gillham starts the issue with his annual analysis of micro-cap stocks, as defined by the S&P Emerging Companies Index. Gillham says micro-caps suit experienced investors who have a higher tolerance for risk and are in the growth stages of their portfolio.

He prefers micro-cap companies that have revenue, are preferably profitable, have low debt and a rising share price on the chart - and analyses six stocks that fit his criteria.

In his small-cap story, Morganstar private-client adviser, Alistair McCorquodale, outlines the pros and cons of buying such stocks for dividend yield. Many investors focus on the top 100 stocks, by capitalisation, for yield and franking credits. McCorquodale argues that there are good yield opportunities outside the largest stocks if you know what to look for.

He says: "Although many small or mid-cap companies are in a growth phase and therefore usually retain a large portion of their profits to reinvest in the business, there may be a number that, because of several factors, may have a relatively high and reliable dividend yield."

This issue's second core theme - asset allocation - is a crucial investment topic. It refers to how investors allocate their portfolio across key asset classes, such as domestic and international shares, fixed interest, listed property and cash.

The Featured Reports section of this issue has three related asset allocation stories. Schroder Investment Management Australia's Oliver Trusler makes a strong case for portfolio diversification and having clear investment objectives and plans. The table in the story, of Annual Asset Class returns from 1998 to 2014, is instructive: it shows that last year's asset-class winners are often among the next year's losers, and reinforces the importance of diversification and rebalancing portfolios.

Insync Fund Managers' Monik Kotecha continues the asset allocation theme with a story on international equities. He says Australian investors, particularly self-managed super fund (SMSF) trustees, who remain significantly under-exposed to global stocks, may be missing out on better value and growth opportunities.

Schroder and Insync are foundation members of the new ASX mFund Settlement Service. mFunds are unlisted managed funds you can invest in through the mFund Settlement Service. Both fund managers are presenting at the upcoming 'Unlocking the value of diversification' seminars, held nationally by ASX in October. Register for the seminars now.

Portfolio expert, Robert da Silva, concludes the asset allocation theme with an insightful story on portfolio rebalancing. He says choosing the right asset allocations for your investment objectives is one thing; being able to rebalance those allocations, which go up or down over time as markets move, is vital to achieving consistent returns. His views are timely for investors who may have too much of their portfolio in a particular sector, such as banks, after gains in the past three years.

Elsewhere, Dixon Advisory's Nerida Cole considers the growing number of superannuation funds that now allow a direct investment in ASX-listed investments. And Fairmont Equities' Michael Gable provides an interesting technical analysis of four key ASX-listed energy stocks.

ASX Investment videos from Lincoln's Tim Lincoln and The Chartist's Nick Radge add further insight to this issue, for portfolio investors and traders respectively.

We hope you enjoy this issue. As always, do further research of your own or talk to a licensed financial adviser before acting on ideas or themes presented in ASX Investor Update.

About the author

Tony Featherstone is consulting editor of ASX Investor Update.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.

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