Bored of the stock market’s endless march higher?
Bored of low volatility, the Big Six banks, dependable dividends and single-digit returns?
Then there’s always the Venture Exchange. Canada’s premier venue for small-cap stocks has the wild swings and exaggerated risk-return profile thrill-seeking investors crave.
The TSX Venture Exchange will release its annual Venture 50 list Thursday, showcasing the fastest-growing stocks in the Canadian small-cap space. Those 50 stocks returned an average of 123 per cent in 2019, which is a mark topped by only nine names in the S&P/TSX Composite Index.
And yet, this is a market with little time for small caps, as the investing masses have migrated toward megacap stocks and broad market index funds.
“Small caps are a forgotten asset class,” said Don Walker, a portfolio manager at PenderFund Capital Management. “There's a plethora of these neat little gems that are just being overlooked.”
As an incubator for junior resource companies, the Venture thrived through the commodity boom of the 2000s, but fortunes shifted dramatically when metals and energy prices tipped into a downturn starting in 2011.
Since around that peak, the number of issuers on the Venture has fallen by 23 per cent, the exchange’s total market value is down by 36 per cent, and the number of shares traded is down by 47 per cent.
The investor frenzy around cannabis and blockchain stocks revived the small-cap space in Canada, briefly. But both industries eventually fell into wicked bear markets when their commercial limitations materialized.
Since the end of 2017, the S&P/TSX Venture Composite Index is down by 32 per cent, while the benchmark S&P/TSX Composite has risen by 11 per cent over the same period.
At the same time as industry cycles and investor preferences have gone in the wrong direction, a longer-term structural problem has further weakened the Venture.
“The increasing focus on keeping companies private longer does represent a serious challenge,” said Brady Fletcher, managing director of the TSX Venture Exchange.
Many Canadian entrepreneurs have taken a pass on going public in recent years, choosing instead to tap into the growing pools of venture capital and private equity in this country.
A continuing campaign by the Toronto Stock Exchange to revitalize the Venture involves easing the regulatory burden on public companies, making it easier for foreign retail investors to access Venture-listed companies and further diversifying beyond natural resources.
“The whole platform and the appeal of public venture capital is just starting to resonate,” Mr. Fletcher said, pointing to the composition of the Venture 50 as a positive sign.
At the top of the list is Toronto-based DynaCERT Inc., in the Venture’s clean tech sector, which builds technology to reduce carbon emissions in diesel engines. The stock nearly quadrupled in 2019, and has since risen by another 51 per cent. In November, the company announced a $14-million investment by billionaire Eric Sprott, who called it “an unusual once-in-a-lifetime opportunity” to invest in a “transformative technology,” according to a news release.
“DynaCERT is a great story,” Mr. Fletcher said. “This is a clean technology company that's been able to use public venture capital to fund their developments to where they're at today.”
Here are last year’s top-performing stocks from the rest of the Venture’s five sectors.
Well Health Technologies Corp. (WELL), diversified industries sector
2019 share price increase: 247 per cent
This Vancouver-based startup, which owns a chain of family-doctor clinics in British Columbia and an electronic medical records business, has elevated its profile through an acquisition strategy, as well as a recent investment by billionaire Li Ka-shing. (The company has since graduated to the S&P/TSX Composite.)
PetroTal Corp. (TAL), energy sector
2019 share price increase: 113 per cent
This Houston-based and Peru-focused oil and gas producer had a successful drilling campaign in 2019, as its share price rose alongside its reserves.
BTU Metals Corp. (BTU), materials sector
2019 share price increase: 191 per cent
There are high hopes for BTU Metals’ flagship Dixie Halo project in Red Lake, Ont., particularly after another company – Great Bear Resources Ltd. – made multiple gold discoveries on an adjacent property.
Score Media and Gaming Inc. (SCR), tech sector
2019 share price increase: 140 per cent
Score’s focus on U.S. sports betting has gained investor attention since the U.S. Supreme Court struck down a federal ban in 2018. Last September, Score landed a $40-million investment to develop and expand its business.
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Tim Shufelt