Personal Finance

Winnipeg Free Press - PRINT EDITION

Small-cap stocks see best performance over two years

By: Paul Delean

Posted: 06/11/2011 1:00 AM | Comments: 0 (including replies)

MONTREAL -- With small-cap stocks, it's usually feast or famine. The past two years have been a smorgasbord.

Canadian small-caps have been the best-performing asset class for two years running, climbing about 170 per cent since their market bottom in November 2008.

In 2010, the runners-up were U.S. small-caps and global small-caps, completing a small-cap trifecta atop the investing scoreboard.

By historical standards, however, it's getting a little late in the cycle.

The average small-cap rally, based on data from the past five rallies, lasted 29 months and brought gains of 108 per cent. This is month 30 of the current one, and values are up about 170 per cent, said Sherbrooke native Richard Fortin, co-manager of the Calgary-based Bissett Small Cap mutual fund, during a stop in Montreal last week.

"For what it's worth, the fundamentals still look pretty good," Fortin said, "but who knows where we go from here? At the end of the day, these are cyclical businesses, and the good times can't last indefinitely."

Canada's small-cap sector has been riding high because of strong rallies in the energy, gold and financial sectors. But the $750-million Bissett fund opted to sit out the gold boom.

"They're about 25 per cent of the BMO (Small-Cap) Index, a disproportionate amount of our investable universe, but you look at these companies, there's no earnings or cash flow, and a lot of single-project risk," Fortin said.

The fund is much more present in the energy space, and especially partial to companies providing specialized services to oil and gas producers. "They were hit hard in the downturn, when the price of oil went from $140 to less than $40 (a barrel)," Fortin noted.

The fund also has a sizable stake in consumer-discretionary stocks, with Quebec-based retailers such as Reitmans, Rona and Le Chateau among its 40 holdings.

Its biggest position is in MI Developments Inc., which owns and leases the more than 100 real estate properties of automotive-parts-maker Magna International (not including the racetracks, which Magna founder Frank Stronach now controls).

"New management is much more shareholder-friendly (than during the Stronach era)," Fortin said.

-- Postmedia News

Republished from the Winnipeg Free Press print edition June 11, 2011 B13

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