Small-Cap Equity Fund

December 31, 2024

Market Context

  • The Canadian small-cap market (Morningstar Canada Small Cap Index) rose 25.1% in 2024. U.S. small-caps gained 20.4% in Canadian dollar terms.
  • Financial services, resources, and healthcare stocks had a strong year. The utilities sector was the only industry to turn in a negative return.

Portfolio Specifics

  • The fund consists of 20 companies, ranging from very small (Diversified Royalty) to medium-sized businesses (ATS Corporation). While the majority of holdings are Canadian, there are three U.S. companies which make up 14% of the fund’s stocks.
  • The fund rose 10.8% in 2024. This would be a good return in most periods but the small-cap markets rose over 20% this year, making the return less attractive from a relative perspective. Resource companies account for over 40% of the Canadian small-cap market and were among the strongest performers. Our manager, Galibier Capital, has found few resource companies with durable competitive advantages and our lower exposure to the sector was a key reason for our underperformance.That said, Galibier’s approach has produced strong results over the longer term.
  • Among the commodity-focused stocks we own, Torex Gold Resources and Capstone Copper benefited from strong metal prices. Torex saw its stock price nearly double in the year and was our top performer. Other strong contributors included Savaria, Greenbrier Companies, Sleep Country Canada, and Park Lawn. Home accessibility specialist Savaria and railcar manufacturer Greenbrier turned in excellent operating results. Sleep Country and Park Lawn were the subjects of takeovers.
  • There were some disappointing results in a year when most stocks were up, with three investments falling more than 20%: Interfor, Enghouse Systems, and Boyd Group Services. Lumber producer Interfor struggled with uncertain demand for new housing and the potential for more protectionism in the U.S. Technology holding Enghouse, which consolidates call center software, suffered as some observers perceive it to be at risk with the increased adoption of AI. Collision repair specialist Boyd suffered from lower volumes due in part to good weather. Galibier believes the market is being too negative on the prospects for these solid businesses and we continue to like their outlooks.
  • Five new stocks were purchased in 2024 and seven sold. The latest additions include Stella-Jones, a leader in treated lumber used in railway ties and utility poles (we’ve owned the stock in the past); and EQB Inc., one of Canada’s fastest growing financial institutions and the parent of Equitable Bank.

Positioning

  • The portfolio has a unique composition, with key areas of investment being capital goods, industrial services, transportation, and consumer companies. This is in contrast to the small-cap market’s heavy focus on resource companies.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.