Opportunity
About 70% of the stocks traded on Canadian exchanges have a market cap of less than $200 million, yet the number of funds investing in this space can be counted on two hands. The mismatch of a large number of companies to select from and a small number of professional investors creates the potential to profit from the market inefficiency.
Strategy
The keys to success in microcap investing are proper expertise and deep due diligence procedures to identify well-managed companies with tangible growth potential from the multitude of investment options.
We blend fundamental research and quantitative analysis to identify the factors that contribute to the success of microcap companies. A value overlay ensures the portfolio’s investments are reasonably valued on a market, sector, and historical basis. We carefully consider investments that may be undervalued due to the absence of sell-side analyst coverage, a misunderstood business model, or simply a lack of liquidity that discourages funds with high-frequency trading tactics.
The result is a concentrated portfolio of 30 to 50 names representing well-priced companies with strong and entrepreneurial management teams. These companies exhibit the key value and momentum metrics that have been historically proven to deliver favourable investment outcomes.
The Norrep advantage
Expertise in inefficient markets: The same proven and repeatable investment process that has driven our small cap funds' performance offers an advantage in microcaps. In fact, a number of current and past holdings in our small cap funds were first discovered by our research team as microcaps.
Direct access to ideas and insight: Our corporate strategy emphasizes going beyond performance to provide ideas and insight to advisors to amplify their ability to serve their clients. Advisors have a unique opportunity to leverage our portfolio managers and analysts to act as resources in maximizing the efficiency of their business.
Independent in-house research: Our research team excels at identifying undervalued securities with significant growth potential before the market recognizes their value. Our deep roster of in-house investment professionals allows the portfolio managers to objectively view the investment's merits.
Long-term focus: Realizing the full benefit of investing in inefficient markets requires a focus on long-term investment prospects. Short-term market turbulence is often an opportunity to selectively add to positions in our favourite investments.