The Investment Case for Canadian MicroCaps with Mathieu Martin, Portfolio Manager of the Rivemont MicroCap Fund
Jul 25, 2024
auto_awesome
Mathieu Martin is a microcap specialist and Portfolio Manager of the Rivemont MicroCap Fund, with a keen eye on Canadian stocks. He shares how his love for microcaps ignited and discusses the inefficiencies he observes in this market. U.S. investors often overlook these opportunities, but Mathieu highlights the current undervaluation of Canadian microcaps, especially in sectors like technology and healthcare. He also reflects on the lessons learned from a tough year in 2022 and emphasizes the importance of disciplined research and risk management in navigating this unique investment landscape.
Mathieu Martin's passion for microcap stocks originated from his entrepreneurial background, emphasizing the importance of identifying market inefficiencies in this segment.
The Canadian microcap market is significantly undervalued, particularly in non-resource sectors, offering unique investment opportunities for retail investors.
US investors often avoid Canadian microcaps due to perceptions of liquidity issues, creating a competitive advantage for smaller investors seeking undervalued stocks.
Deep dives
Matthew Martin's Journey into Microcaps
Matthew Martin's interest in microcap stocks stems from his background in entrepreneurship, instilled by his parents who were small business owners. Initially unsure of his career path, he ventured into poker, where he gained financial skills and an understanding of risk and volatility. A friend introduced him to microcap investing, leading him to develop a strategy capitalizing on market inefficiencies. His journey included writing educational content and ultimately launching the Riemann Microcap Fund, focusing on identifying undervalued microcap opportunities.
The Inefficiency of the Canadian Microcap Market
The Canadian microcap market presents significant inefficiencies, particularly in segments beyond natural resources, which dominate the market. Martin emphasizes the need to focus on non-resource companies that are profitable and growing, as they tend to be overlooked by institutional investors. Furthermore, he identifies that many good opportunities lie in companies with market caps under $100 million, where retail investors primarily operate. This disparity in attention allows for unique investment opportunities that can lead to substantial long-term gains.
Entry Barriers for US Investors
Many US-based investors avoid Canadian microcap stocks due to perceived liquidity issues and a lack of institutional coverage in that space. Martin observes that while some US investors do venture into these markets, most institutional players are only interested in companies with larger market caps above $200 million. This presents an opportunity for smaller investors to capitalize on inefficiencies before larger funds discover these undervalued stocks. Recent increased acquisitions of Canadian microcap companies by US private equity firms further highlight the undervaluation present in this market.
Investment Strategies and Position Sizing
Martin employs a concentrated portfolio strategy, typically holding 15 to 25 positions, with a focus on high-quality, growth-oriented companies. He carefully sizes positions to ensure adequate risk management, often increasing exposure when a stock is undervalued due to non-structural reasons. This approach allows him to leverage his understanding of individual companies while minimizing the risk associated with volatile microcap investments. His recent experiences navigating market challenges also emphasize the importance of adhering to investment criteria and recognizing when to trim positions.
Future Outlook for the Canadian Microcap Landscape
The current state of the Canadian microcap market indicates significant potential for recovery and growth in valuations as the economic environment improves. Martin believes that while the market has experienced downturns, the foundations for a rebound exist, particularly as liquidity and financing improve. He anticipates increased institutional interest in the years to come, especially as Canadian microcaps are re-evaluated against favorable historical and comparative metrics. This outlook reinforces Martin's commitment to the microcap investment space and his belief in its long-term viability.
My guest on the show today is Mathieu Martin, the Portfolio Manager of the Rivemont Microcap Fund. Mathieu is a microcap specialist who focuses on Canadian stocks. I have personally become fascinated with the differences between the US and Canadian markets, and I was excited to talk to Mathieu about:
Where his love for microcap stocks began;
The level of inefficiency he sees within Canadian microcaps;
Why US-based investors don’t venture up to Canada as often as they should; and
What he learned after having a tough year in 2022;
Just how cheap Canadian microcaps are at the current moment
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of SNN or its affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode