My question is about the Small cap sector in TSX, which still seems to be lagging its US peers, except some strength in the materials. Is this normal, historically? What could be the reasons for this divergence and do you see this gap narrowing, in the near term ?
Your perspective would be really helpful as many of us follow your advice and Model Portfolios. Small Caps are your expertise, without doubt and you ( Peter, Ryan and Team ) are regarded as one of the Best Portfolio Managers in US and Canadian stocks.
Thank You
Canadian small caps are indeed very different than in the US. For one, on average, they are significantly smaller. Small caps in the US can be $5B. In Canada, they can be $100M or less. Our market is very thin, and there are only a few institutional funds that will buy small caps When I (Peter) was at CI Financial, I would present some interesting small cap ideas with market caps of $300M or so. But CI had $50B in assets, so to get a sizeable position they would have needed to buy 20% or more of the company I was interested in. Over time, my $300M fund just did its own thing and other managers couldn't buy anything I presented to them. This is somewhat the scenario in all of Canada. Too much money chases the top 60 companies, and the rest are left behind, are very cheap, and often get acquired. XCS, a large Canadian small cap ETF, is $150M in assets. IWM, representing US small caps, is $71B. That about sums things up perfectly.