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Mark Bower-Easton at Oxford Capital comments on why investors should consider SMEs in their portfolio.
“Through 2024, investors are turning their attention to the potential that SMEs offer. They often embody innovation and agility, making them strategic investments in our ever-evolving market. Not only this, but their entrepreneurial spirit and in particular, adaptability offers a unique edge.
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The playbook for investing in SMEs is simple: diversify smartly, focus on innovation, do your research and be patient for growth. It’s not just about the financial gain, it’s about believing in the growth and potential of small businesses to thrive.
As you contemplate your investment strategy for the future, don’t underestimate the potential of SMEs. With careful consideration, these ventures can become valuable assets in your investment portfolio, offering a unique blend of innovation, adaptability, and growth potential.”
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Innovation and High Growth Potential
SMEs leverage their compact size to facilitate agile decision-making and experimentation, making them a source of significant innovation. This dynamic environment serves as a breeding ground for pioneering ideas and technological breakthroughs. While larger corporations often dominate the limelight, SMEs represent a reservoir of untapped growth potential, where their smaller size and leaner structure enables for more rapid scaling and adaptation in response to ever-changing market conditions.
Many SMEs find themselves in the early stages of development, presenting a unique opportunity for investors to engage at the foundation level. While such investments may carry risks, they equally present the potential for lucrative returns as the business grows.
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Flexibility and Adaptability
The business landscape is undergoing rapid evolution, with small and medium-sized enterprises at the forefront. Their inherent adaptability positions them to pivot and flourish in dynamic environments, of which investing in fortifies your portfolio against the uncertainties of the future.
Investing in SMEs signifies a deliberate move towards diversifying your investment portfolio, which is fundamental for effective risk management.3 SMEs, characterised by their unique market niches and growth trajectories, offer valuable diversification opportunities which can help mitigate the impact of economic downturns or challenges within specific industries on your portfolio.
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Local Impact with Global Reach
Supporting SMEs isn’t just about the financial gain; it’s about making a positive impact for yourself, for the business and the broader economy. Often serving as the backbone of local economies, SMEs play a crucial role in job creation and community development. Through strategic investment in SMEs, you actively contribute to the growth of both local communities and the global economy.
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Technological Advancements
In a world where technological advancements unfold at an unprecedented pace, innovations of yesterday swiftly become today’s standards. SMEs, particularly those in the technology sector, often drive innovation and disrupt traditional business models. Allocating investments to tech-savvy SMEs provides a gateway to the forefront of the latest advancements, ranging from artificial intelligence to biotechnology.
What to look for when investing in SMEs
It’s important to conduct thorough research when investing in SMEs; assess its business model, financial health, and leadership. Don’t be afraid to scrutinise financial statements, industry dynamics, and ensure legal compliance. It’s important to build relationships within the SME ecosystem which will help you gain valuable insights, and have a clear exit strategy.
This is especially important as SMEs in some cases, represent a higher degree of risk, where the nature of SMEs make them increasingly susceptible to broader economic market challenges. The success of your investment is often heavily dependent on the quality of the SME management team.
Credit: https://oxcp.com/
