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August 22, 2023

Commentary: NCM Small Companies Class

On August 22, 2023, Portfolio Manager Alex Sasso, CFA provided an update on NCM Small Companies Class.


Hi, everybody, it's Alex Sasso the manager of the NCM Small Companies Fund. Today is August 22nd, 2023, and I'm here to give you a quick update on the NCM Small Companies Fund. First, just so everybody's aware this is our traditional small cap. We call them mini blue chip product. We're really focusing in on world class, small cap companies that just happen to be in a smaller niche than some of the larger cap companies out there.

Really focusing in on strong cash flows, in particular these strong free cash flows, as we believe that particularly when it comes to Canadian small caps, free cash flow and what we call free cash flow yield is one of your best predictors of future stock price movements.

And we call it a wealth creation product because we believe that there's a lot of really great small cap companies out there that are just under-loved and under followed, and that they also provide better opportunities for better growth and better growth rates. You get much better metrics, you get much better value for growth is another way of saying it.

And then you can also get very specific with regards to the niche that you want to invest in because you have so many more opportunities where in large cap Canada there are only a handful of companies that you would really consider world class, large cap companies. In the small cap world, you've got literally thousands of opportunities to invest in.

Now, we don't play the story stocks. We don't play themes that are relatively new themes. We really stick and focus to our strong quant metrics and we marry the quants and the fundamentals together. And speaking of quants, I've got some metrics that I wanted to share with you today on the fund.

The quants are very important to us, so to give you a sense of how inexpensive this fund is the market usually uses price earnings ratios and enterprise value to EBITDA to talk about how inexpensive or expensive a company is, and the enterprise value to EBITDA for the NCM Small Companies Fund, these metrics are at the end of July, is eight times. That's significantly less expensive than the benchmark, which is the BMO Small Cap Total Return Index. The free cash flow yield is 9.1% versus 6% for the BMO. The return on equity is in the low twenties. Again, that's more than double the BMO. And these numbers are from FactSet, by the way.

Return on assets significantly better as well. Your net margin is over 12%. That's a very healthy number so you can see that we're investing in very robust, very healthy, small, small and mid-cap companies and our return on invested capital is 11% versus 7% for the benchmark. The three year earnings growth rate for the fund is a whopping 42%. So even though these companies are priced very inexpensively relative to the market, you can see that these companies are growing their bottom line and growing very, very rapidly. The three year revenue growth number for these companies is 30%, just a hair under 30%.

So better top line growth, much better bottom line growth and expensive valuation and generating strong free cash flow yield, the benefit of which companies can use to increase, grow and increase their dividend or reinvest back in the business. And our dividend per share growth rate, this is the five year number, is 15% for this fund.

So very, very strong metrics and it's a testament to our proven and repeatable and disciplined investment methodology. If you have any questions, please reach out to your wholesaler at Thank you.


The information in this video is current as of August 22, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Alex Sasso, CFA

Chief Executive Officer and Portfolio Manager of NCM Small Companies Class and NCM Income Growth Class.