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In early May, Norsat International (No. 278) reported financial results from a solid first quarter. The small firm, based in Richmond, B.C., shipped a number of its military satellite terminals to a "major Eurasian defence contractor" early in the year, which generated a nice bump in revenue. Profits doubled over the previous year, costs were contained, margins were up — just the kind of quarter that would typically delight the market. For Norsat, crickets.

With almost no analyst coverage and few remaining funds focused on stocks that small, Norsat shares registered zero investor interest in the company's success. The stock barely moved for more than a week — an eternity in today's algorithmic trading environment, where news is acted upon in a heartbeat.

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After a brutal five-year sell-off, the market for smaller Canadian stocks is like a hockey arena that half-empties midway through a visiting-team blowout. Now that the comeback is on, there aren't many people left to see it. "We can spend months accumulating the positions we want. Nobody cares — nobody's looking," says Chris Guthrie, president of Hillsdale Investment, which owns shares in Norsat.

Things started to go badly for Canadian small-cap stocks in mid-2011, around the same time the global commodity complex tipped into a downturn. A heavy dependence on resources ensured the domestic small-cap space would be ravaged as commodity prices fell. Since peaking in 2011, the S&P/TSX SmallCap Index fell by nearly 50% over almost five years up to January. The S&P/TSX Venture Composite fell by more than 80% over the same time.

The sustained sell-off has made casualties of one-quarter of the country's boutique brokerages, while the larger independents have had to cut deeply. Sell-side research is thin, IPOs are rare, and investors have turned away from small-cap stocks to concentrate their equity holdings in larger names and large-cap funds.

On the plus side, there's little competition for the investors that remain. "There are no more crowded trades in Canadian small-caps," says Guthrie, who also manages Hillsdale's Canadian Micro Cap Equity Fund. And yet, there is money to be made. Since its inception in December, 2013, that fund has generated an annual average return of 11.9% and was up by 22.5% in the first third of this year. After hitting valuations not seen since the financial crisis, Canadian small-caps have been swept up by the commodity rally. The SmallCap Index rose by nearly 50% in the four months up to mid-May, which exceeds any uptrend of the last five years. And slowly, the resurgence is drawing interest back into Canadian small-caps, Guthrie says.

But be selective. "At this point, investors can't just close their eyes and buy small-caps. You have to make sure they're actually growing."

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