The Opportunity Hiding in Plain Sight

Cyclicity is a well-known feature of the resources & energy sectors. While the main cycles are essentially driven by major shifts in supply and demand, in the last 2 years there has been a marked divergence in the behaviour between the solidly performing mid and large-cap stocks and the largely underperforming microcaps stocks. This divergence, we believe, has created a pronounced mispricing in the microcap resources & energy sectors that is hiding in plain sight. We do not know when the current downswing in microcap stocks will end, but history shows that the recoveries can be quick and strong. Moreover, investors who recognise the opportunity and invest near the bottom can be generously rewarded.

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