In November, we saw a significant rotation of funds into the small cap sector in the U.S. and Canada by professional investors. This rotation was driven by the combination of positive vaccine news and the outcome of the U.S. Presidential election. With further U.S. fiscal stimulus coming through the Biden administration’s agenda, both U.S and Canadian economies should benefit.
As a result, we expect small cap companies to outperform their large cap peers in 2021 since small cap companies have more leverage to a domestic economy and have more ability to grow their earnings. In addition, valuations of small cap companies are reasonable and very attractive compared to the stretched valuations of the large tech companies and related COVID-19 winners.