Value of Small-Cap Investing

We believe that, over time, great value is created by picking promising, high-quality and well-established, early-stage growth companies, and letting our winners run their growth course and then recycling the maturing investments again into early stage growth companies.

STOCKS, BONDS, T-BILLS AND INFLATION - CANADA    (1950-2011)

(December 31, 2011)

The chart above shows the Canadian experience of various indices from 1950 to the recent present. The performance of these passive indices shows similar results to the U.S. indices, and the conclusions are the same. However, in Canada, the small-cap benchmark indices reflect much higher exposures to energy, mining & metals and gold stocks than the U.S. small cap index equivalent. Thus, differing investment philosophies concerning resource stocks could materially affect the ability of an active investment manager to outperform the passive benchmark over the medium term.

STOCKS, BONDS, T-BILLS AND INFLATION - U.S.    (1925-2010)

(December 31, 2010)

The chart above simply illustrates the performance of various U.S. indices from 1925 to the recent present. The performance of these passive indices clearly shows that investing in U.S. small-cap stocks has been the best among the traditional asset classes available for investment. However, what is not so well understood, is the fact that small-cap stocks are relatively (illiquid) investments and most investment analysts and stock brokers are not motivated to follow such stocks, creating an “inefficient” market for small-cap stocks. This allows active small-cap managers the opportunity to significantly outperform the passive small-cap benchmark index.