The following is an excerpt from Canaccord Genuity’s Morning Coffee newsletter.
Canaccord Genuity North American Strategist Martin Roberge has reiterated his call to favour Canadian Small Cap (SC) equities over Large Cap (LC) equities in 2014.
After three conservative years of underperformance, he believes conditions are now in place for small caps to lead. This theme is off to a good start this year with the S&P/TSX Canadian Small Cap Index up 11.2% vs 6.9% for the Large Cap S&P/TSX 60 Index.
Roberge believes further small cap outperformance is in the cards. Canadian small caps are dirt cheap relative to large caps, and this is happening while most of Roberge’s drivers of small cap outperformance are providing a green flag to investors.
Roberge acknowledges that his small cap and large cap call has an important “resource” tilt.
However, unless one believes that another “black swan” event a la 2008-2009 is in the cards, absolute valuation likely bottomed in 2013.
As for non-resources, as a group, they tend to track the performance of global equity markets. As such, Roberge believes valuation can stretch a little more if small caps have become a discounted them in Canada.
In the meantime, Roberge believes any dips in the
iShares S&P TSX SmallCap Index Fund (
TSX: T.XCS,
Stock Forum) should be bought.
On Monday, the shares rose 0.12% to $17.30, leaving a market cap of $185.1 million, based on 10.7 million.