Microcap bulletin

October 16th, 2020

Microcap Bulletin – Q3 2020

Dear investors,

During the third quarter, we saw the continuation of a trend that began in the second quarter: a sustained rally across North American stock markets. In the United States, the S&P 500 Index even hit a new all-time high at the beginning of September.

The quarter was marked by an easing of shelter-in-place measures around the world and by a somewhat renewed optimism on the part of investors. In the technology sector, we could even say optimism turned to euphoria as some companies taking advantage of the current environment (shelter-in-place, work from home, etc.) are reaching breathtaking valuations.

Canadian microcaps have done fairly well over the past three and six months as far as we are concerned. However, we are still a long way from seeing euphoria or major enthusiasm for the sector. There remains a significant dislocation between the valuation of large caps and microcaps. In our portfolio, the valuations of our microcaps are still very reasonable. Thus, we believe the fund’s portfolio and the Canadian microcap sector in general currently offer a very attractive risk/reward profile compared to other asset classes.

Let’s now take a look at some metrics about the fund, as at September 30th, 2020:

  • $8.43 million in net assets under management.
  • 94% was invested and 6% remained in net cash.
  • 33 positions. The largest represented 10.6% of the portfolio.
  • The top 5 positions represented 38% of the portfolio.
  • Fund unit value of $7.58*, for an overall return of + 22.7%** during the quarter.

* Series B units (MAJ724)
** Net return after all fees.

To compare our performance during the third quarter (July 1st to September 30th, 2020), we use the S&P/TSX Small Cap Index as our benchmark. This index reflects the small cap market performance in Canada. To get an overview of the US market performance, we refer to the LD Micro Index. Here is the performance of the two indices during the quarter:

As you can see, the Rivemont MicroCap Fund had an excellent third quarter relative to the indices. It is not easy to attribute this outperformance to one item in particular. We believe this generally reflects our stock picks’ quality, as our companies weathered the crisis better than the average. The fact that the portfolio is mainly invested in the technology sector has undoubtedly been a significant advantage in the context of the pandemic.

To put the entire COVID-19 crisis into perspective, here are the returns for these same indices on a year-to-date (YTD) basis:

Again, the fund performed well and demonstrated our investment strategy’s resilience despite the extreme fluctuations we went through earlier this year.

Number of positions in the portfolio


Some may have noticed that the number of positions in the portfolio has increased significantly since the start of the year, from 25 to 33. We consider this situation to be temporary and identify two reasons for this increase:

  1. The broad market decline earlier this year created a lot of bargains and opportunities. At all times, we closely monitor between 100 and 150 stocks that meet or are close to meeting our investment criteria. These stocks are often too expensive, and we are just waiting for the right opportunity to buy them. This year, the market offered us several buying opportunities for quality companies, and we took advantage of them, which led to an increase in the number of positions.
  2. On the other hand, it can sometimes be challenging to sell positions quickly after making the decision. This is mainly due to liquidity constraints. We often have to be patient and sell very gradually not to hurt the stock price too much before we are done. We currently hold a few positions, which individually account for 0.5% to 2% of the portfolio, which we intend to sell in the coming months when the opportunity (liquidity) will arise.
Our goal remains to run a concentrated portfolio of about 25 stocks, with a high percentage in our best ideas. Therefore, you can expect to see the number of positions in the portfolio gradually decrease to move towards this target.

Ideally, we would like to have more than 40% of the assets invested in our top 5 ideas and more than 75% in our top 15 ideas. Currently, we stand at 38% and 70%, respectively.

New Private Investment


Towards the end of the quarter, we completed a second investment in a private company: Spaceful Technologies. The company is a Montreal-based on-demand storage and moving company that uses technology to meet two critical needs:

1. To pick up, handle, and haul people’s stuff safely to storage, all for less than the price of traditional self-storage.
2. To offer third-party logistics (“3PL”) services to small and medium-sized e-commerce businesses.

It is in the 3PL segment that we see the most potential in the short and longer-term. Essentially, Spaceful works with online merchants to store their inventory, receive their orders, package them, and ship them to the final customer. Spaceful’s clients can thus focus only on what they do best, selling merchandise online, without the headaches of managing a warehouse. Spaceful enhances its services with technology by integrating with e-commerce platforms (such as Shopify), optimizing storage space, and building workflows to process orders more quickly and efficiently.

Due to the pandemic, we are currently seeing an acceleration and explosion in e-commerce. Third-party logistics services are a large market where many competitors are slow to integrate technology into their processes. Spaceful has the opportunity to position itself as an innovator in this industry and quickly gain market share.

We are excited to follow this company’s growth, and we hope to see Spaceful move towards a public listing when the time is appropriate.

While we are on the topic of private investments, we are also pleased to report that our first private investment, WeCook Meals, recently concluded an investment round valuing the company at $22 million. The Rivemont MicroCap Fund invested in the company at a valuation of $10 million in October 2019. Considering other dilutive instruments, the value of our investment increased by 102% in less than a year. This investment alone provided a return of approximately 3.6% to the fund after the end of the third quarter (n.b. this is not included in the third quarter results presented herein as it happened in the first week of the fourth quarter).



As mentioned in the introduction, we believe that our portfolio companies are currently trading at valuations that are very reasonable compared to large caps. This should position the fund to perform well relative to the rest of the market over the coming months. Moreover, the fourth quarter has already started on a positive note with a return of 2.8% during the first two weeks.

The strategy is one of its kind for a simple reason: we have lower assets under management than other institutional microcap managers. This allows us to invest in the best opportunities, even if companies are extremely small. There are very few (if any) funds in Canada that have such a structural advantage, and we fully intend to continue to exploit it.

In closing, we remind you that we are happy to organize virtual meetings if you or anyone you know would like to learn more about the strategy. We welcome all references for long-term investors looking for an alternative strategy to add to their portfolio. Do not hesitate to contact Jean Lamontagne (contact information at the bottom of this e-mail) to organize a virtual meeting.

We hope that you and your loved ones are staying safe and healthy. If you have any questions or concerns about your investments, please do not hesitate to reach out.

Thank you for your trust, and we look forward to our next communication!

Rivemont Investments

Portfolio Manager of the Rivemont MicroCap Fund

Units of the Rivemont MicroCap Fund are available under exemptions from the prospectus requirements, pursuant to National Instrument 45-106 Prospectus and Registration Exemptions, and are available only to qualified investors, including portfolio manager clients. This document is not a recommendation nor an investment advice and is presented for informational purposes only.

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