Canada Connection: Three small caps

These days, Canadian small-cap specialist Martin Ferguson admits he is in a pretty good but somewhat careful mood about the coming prospects for the Canadian equity market.

Ferguson, director and small-cap portfolio manager at Calgary-based Mawer Investment Management Ltd., says he expects Canadian small caps to deliver at least single-digit returns over the next 12 months.

While Ferguson expects that is in line with larger-cap companies north of the border, he adds that much hinges of the U.S. economy and whether it “rebounds from its moribund 0.7% annualized growth for the first quarter of 2007 and that interest rates do not rise meaningfully from here." 

As a result, Ferguson says his approach to the Canadian small-cap market is “cautious, but not bearish."

Ferguson personally handles about C$1-billion of the C$4.7 billion that Mawer has currently under management. And he believes one of the main drivers in coming months will be merger and acquisitions.

"Despite the recent hike in interest rates, many stocks remain more attractive than fixed income alternatives,” he says in his latest outlook.
 
In choosing Canadian small caps, Ferguson says he looks for companies with a market cap of C$500-million or less at the time of his first purchase. They must also ideally have significant competitive advantages, with management that must "have a thorough knowledge of the business and be financially astute."

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