Canadian micro-cap stocks add competitive edge to investment portfolios
- Aug 20, 2014
Canadian micro-cap stocks may be the smallest of publicly traded companies in Canada, but they can pack a mighty punch to your investment portfolio nonetheless.
That’s why they should be considered a valuable component for global investors to diversify their holdings, said two Ivey researchers who studied Canadian micro-cap stocks as a potentially lucrative investment.
Ivey Professor Steve Foerster and Associate Professor Stephen Sapp, along with Lionel Fogler, Vice-President of the Toronto-based value investing company, Kingwest & Co., reviewed data from the Canadian Financial Markets Research Centre from 1950 to 2009. They found Canadian micro-cap stocks historically offered relatively high returns and can improve the risk-return characteristics of an investment portfolio.
Their article, “Northern Exposure: How Canadian Micro-Cap Stock Investments Can Benefit Investors,” is published in the current edition of The Journal of Investment Consulting, a U.S. publication of the Investment Management Consultants Association.
“Canadian micro-cap stocks have demonstrated superior long-term return performance compared to larger stocks,” wrote the authors. “We find clear evidence that both types of investors (Canadian and those living outside of Canada) can benefit from diversification that includes a tilt toward Canadian micro-cap stocks.”
While Canadian micro-cap stocks are more volatile initially, the study results show they outperform larger stocks long term.