2021 may turn out to be the “Year of the Small-Cap” if this month is any indication.
We’re a little over two weeks into the year, and the Russell 2000 Index is up 8.93% while the TSX Venture Index and the CSE Composite Index are up 6.41% and 19.46%, respectively.
Suffice to say, this is a dramatic turnaround for small-caps; almost a year and a half ago, large-cap outperformance of small-caps was reaching historic levels.
So, what changed?
“[Chief investment at Bryn Mawr, Jeff Mills], who has $17 billion in assets under management, believes small caps will outperform large caps [in 2021] as market leadership continues to change to reflect a stronger economy.”
And that more specifically,
“[Mr. Mills] predicts the coronavirus vaccine and benefits from massive economic stimulus will drive investors from crowded large cap, momentum technology trades and into smaller companies tied to growth.
Tom Lydon of ETF Trends appears to agree, recently writing,
“Small caps are focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks. Large cap companies often have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.”
Already, liquidity is surging among small-cap exchanges like the TSX Venture. In a Weekly Intelligence Newsletter titled, “Have We Finally Hit Peak Liquidity?,” we wrote,
“In December of 2019, the Venture saw 2.70 billion total shares traded — in December 2020, a whopping 6.58 billion shares changed hands. The value of all shares traded back in December 2019 totalled $828 million, while in December of 2020, the total value eclipsed $4 billion.”
“In other words, the TSX Venture saw a 4X increase in liquidity for December 2020 when compared to the same month in 2019.”
Canadian Small-Caps Could Break Out in 2021
After years of struggling, small-cap exchanges are coming back to life. For investors speculating on Canadian exchanges like the TSX Venture and CSE, this could mean a year full of new emerging technology and resource investment opportunities.