Why Choose Lightwater?
Canadian Mid-Cap Stock Focus
Lightwater Canadian ‘Mid-Cap’ Stock Definition:
| Large Cap | >2.5 billion mkt. cap | 150 stocks |
| Mid-Cap | $200M to 2.5 bn mkt. cap | 450 stocks |
| Small Cap | <$200 million mkt. cap | 2,800 stocks |
Based on these ranges, 4% of Canadian stocks are large cap, 13% are mid-cap and 82% are small-cap stocks.
Approximately half of mid-cap stocks are in resource sectors. Our focus is on non-resource segments, so our investible universe is about 200-250 stocks.
Why Focus on Mid Caps?
Inefficiency of the Market. Stocks can trade at mis-priced valuations for extended periods of time. We take advantage of the mis-pricing.
Fewer Investors. Better opportunities for those who remain. Concentration of wealth management in Canada has led to larger fund size, who are limited to large-cap stocks. Retail investors are not as active in small and mid-sized stocks as in the past.
Better Risk / Return. Mid-cap companies are typically established businesses so less early-phase problems yet have potential to grow.
Access to Management. We can (and do) call the CEO of a mid-cap company. No chance of that occurring in a large-cap Canadian company.
Non-Index
Low Correlation with Indexes
Investor look to hedge funds to diversify their portfolios by providing returns that have low correlation with their core positions.
Here are the correlations of our funds with the TSX since inception:
| Lightwater Long Short Fund | 0.11 |
| The Nimble Fund | 0.14 |
The funds’ low correlation is due in part to the long/short structure as well as the fact that we hold few stocks in our funds that appear in the indexes.
Low Correlation
True Portfolio Diversifiers
Our funds do not invest in the same stocks that clients hold in their own porfolios.
Imagine a Canadian equity fund that holds:
* no banks
* no telecoms
* no pipelines nor utilities
* no railways
* no gold stocks
