Market Overview
2025
Q1
U.S. Market: Volatility Returns Amid Tariff Turmoil
The first quarter of 2025 was marked by heightened volatility and growing economic strain as global trade tensions escalated. The Trump administration’s renewed tariff agenda, paired with sweeping federal budget cuts via the Department of Government Efficiency (DOGE), rattled investor confidence and slowed economic momentum. U.S. small-cap stocks posted their worst Q1 performance since 2020, with the Russell 2000 declining sharply. High-valuation tech names led the retreat, while Utilities remained the only sector in positive territory. Anecdotal reports from U.S. executives point to rising hesitation around capital investment, hiring and M&A—largely due to uncertainty over trade policy and supply chain disruptions. Inflation remains elevated, potentially aggravated by proposed tariffs, and signs of economic deceleration emerged in March, with weakening job numbers and softer consumer and business spending. While a recession doesn’t appear imminent, the risk of a self-inflicted downturn is growing.
North American Sentiment: Confidence Slips
In both the U.S. and Canada, tariff-related uncertainty has led to hesitation around capital spending, hiring and M&A. Business leaders are struggling to forecast supply chain costs and demand, leading to more conservative outlooks. Inflation remains elevated, while payroll growth and consumer spending have softened. In Canada, these concerns are compounded by election-related uncertainty and trade exposure to U.S. policy. Export-oriented sectors are pulling back, and companies across both countries are prioritizing cost control and capital flexibility. As a result, investors are increasingly risk-averse heading into the second quarter.
Canadian Market: Commodity Strength Masks Broader Weakness
Canadian equities mirrored U.S. volatility, with small caps trailing the TSX Small Cap Index. Gains in Materials and Utilities were driven by higher commodity prices—gold alone rose 18% in USD terms—helping to cushion broader declines. However, the rest of the market struggled, particularly trade-sensitive sectors like Industrials and Technology. Canadian exporters are increasingly viewed as potential collateral damage in the growing U.S. trade conflict, raising questions about pricing power and demand visibility. Business sentiment has weakened, and hiring intentions have moderated. Still, many Canadian small caps now trade at compelling valuations, especially those with limited global exposure, strong
balance sheets and leverage to eventual rate cuts from the Bank of Canada. These dynamics position the sector for a potential rebound once macro pressures ease.
Asia: Margin Pressure Rises
Asian markets outperformed in Q1, led by a recovery in Chinese equities and ongoing stimulus measures across the region. China’s targeted consumption support and stabilization policies have helped restore investor confidence after prolonged underperformance. That said, not all areas of Asia are faring equally. In Japan, export-heavy sectors—particularly autos and industrials—are feeling the impact of global trade frictions and rising material costs. Domestically focused small-cap businesses are more insulated from geopolitical risk but are grappling with wage inflation and higher input prices. Many of these companies are struggling to pass along costs in a timely manner, leading to tighter margins. Nonetheless, structural reforms and fiscal initiatives continue to support economic momentum, making Asia a relatively attractive region for investors seeking diversification and medium-term growth.
Europe: Cautious Optimism Emerging
Europe delivered solid mid-to-high single-digit gains in Q1 as investors responded positively to improving economic signals. While companies have taken a cautious stance on U.S. trade policy, a shift in mindset is taking root. Germany’s stimulus rollout exceeded expectations and strengthened local sentiment. The broader European market is beginning to reposition around domestic resilience and renewed fiscal momentum.
Asset Class Performance: A Defensive Tilt
Global investors pulled back from risk-heavy assets and rotated into defensive names. U.S. and Canadian small caps declined, while Europe and Asia outperformed. Gold stood out as a safe haven, and bond yields fell as investors sought shelter. The U.S. dollar weakened, and market leadership shifted toward value and income strategies, reflecting a clear risk-off tone to start 2025.
balance sheets and leverage to eventual rate cuts from the Bank of Canada. These dynamics position the sector for a potential rebound once macro pressures ease.
Asia: Margin Pressure Rises
Asian markets outperformed in Q1, led by a recovery in Chinese equities and ongoing stimulus measures across the region. China’s targeted consumption support and stabilization policies have helped restore investor confidence after prolonged underperformance. That said, not all areas of Asia are faring equally. In Japan, export-heavy sectors—particularly autos and industrials—are feeling the impact of global trade frictions and rising material costs. Domestically focused small-cap businesses are more insulated from geopolitical risk but are grappling with wage inflation and higher input prices. Many of these companies are struggling to pass along costs in a timely manner, leading to tighter margins. Nonetheless, structural reforms and fiscal initiatives continue to support economic momentum, making Asia a relatively attractive region for investors seeking diversification and medium-term growth.
Europe: Cautious Optimism Emerging
Europe delivered solid mid-to-high single-digit gains in Q1 as investors responded positively to improving economic signals. While companies have taken a cautious stance on U.S. trade policy, a shift in mindset is taking root. Germany’s stimulus rollout exceeded expectations and strengthened local sentiment. The broader European market is beginning to reposition around domestic resilience and renewed fiscal momentum.
Asset Class Performance: A Defensive Tilt
Global investors pulled back from risk-heavy assets and rotated into defensive names. U.S. and Canadian small caps declined, while Europe and Asia outperformed. Gold stood out as a safe haven, and bond yields fell as investors sought shelter. The U.S. dollar weakened, and market leadership shifted toward value and income strategies, reflecting a clear risk-off tone to start 2025.
Quarterly results by strategy
Canadian Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Canadian Small Cap Composite, compared to the S&P/TSX Canadian Small Cap Index and the S&P/TSX Composite Index (as at March 31, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
*Note: Results are the BMO Small Cap Blended Weighted Index from June 30, 1992 to December 31, 1999 and thereafter the S&P/TSX Canadian Small Cap Index.
** Note : June 30, 1992
Portfolio Positioning
As in past periods marked by sharp commodity rallies, our long-standing underweight to materials—particularly metals and mining—was a headwind. These sectors surged alongside gold and silver prices, but we remain comfortable avoiding them given their high cyclicality, weak through-the-cycle returns and geopolitical risks. Instead, we focus on capital-light businesses with consistent ROE and ROIC, a strategy that has added an average of 6% in annual outperformance versus the TSX Small Cap Index over 33 years.
In Q1, our lack of materials exposure detracted from our relative performance. Additional pressure came from our overweight in industrials, which declined amid fears that U.S. tariffs would spill over to Canadian companies. We saw broad multiple compression across industrial names, even those with little or no tariff exposure. Stocks like GDI, Adentra and Savaria sold off despite strong fundamentals. After speaking directly with the management teams of each of our holdings, we believe the impact of announced tariffs is limited and manageable—particularly for USMCA-compliant companies, which represent most of our portfolio.
Our current industrial holdings trade at a meaningful discount to intrinsic value. We remain confident in their ability to withstand macro shocks and emerge stronger than competitors. Likewise, our overweight to the IT sector added to short-term pressure, contributing a 1.9% drag in Q1.
Stock selection also detracted from our performance, largely from non-mining material holdings like 5N Plus and Winpak, both of which saw multiple compression despite resilient business models and sound financials. As always, we invest with a long-term lens. Each new position is underwritten with a 15%+ expected compound return over a three- to five-year horizon. Short-term underperformance, while frustrating, does not alter our discipline. We remain committed to our core strategy of owning high-quality, reasonably valued companies and avoiding short-term fads or speculative sectors.
Our significant Q1 contributors to performance:
- TerraVest Industries (+27.3%) on continued strong execution and its accretive acquisition of Entrans.
- Badger Infrastructure Solutions (+8.8%), driven by improved truck utilization, margin expansion and robust growth in its U.S. hydrovac market.
- Pet Valu (+5.4%), supported by the completion of major supply chain upgrades and stable industry trends.
- Dye & Durham (-38.3%) due to leadership changes, CEO share divestment and concerns around contract renewals.
- Ag Growth International (-30.9%) following weaker demand in its U.S. Farm segment despite continued strength in its Commercial business.
- MATTR Infrastructure Technologies (-19.0%) on negative sentiment toward its Flexpipe division, although management remains confident in long-term strategy execution.
Portfolio Changes
In Q1, we remained highly active in response to individual stock price volatility and continued to enhance the quality and long-term positioning of our portfolio through disciplined, research-driven decisions. Below is a summary of the key changes we made during the first quarter, along with the rationale behind each move:
- 5N Plus – We increased our position due to its attractive valuation and strong long-term growth potential. Later in the quarter, we trimmed the position slightly for weight management reasons as the stock hit new highs.
- Dye & Durham – We added to this holding as the stock became undervalued relative to its fundamentals and long-term outlook.
- MDA Space – We increased our holding to reflect our confidence in its organic and acquisition-driven growth trajectory.
- Terravest Industries – We initiated a new position in this industrial equipment leader due to its strong fundamentals, recent acquisition of Entrans and attractive long-term return prospects.
- Sylogist – We trimmed the position for weight management reasons.
- Aritzia and Pet Valu – We trimmed both positions based on valuation discipline and weight considerations.
- Topicus.com – We fully exited after strong performance pushed its market cap beyond our small-cap threshold. Proceeds were redirected into higher-return small-cap opportunities.
Outlook
The macroeconomic backdrop has clearly deteriorated in early 2025. Escalating tariff threats, protectionist rhetoric and rising trade tensions—particularly out of the U.S.—are dampening global economic activity. Business leaders across industries have become more cautious, slowing spending on expansion, capital investments and hiring. As a result, economists are increasingly forecasting a recession that, while self-inflicted, could affect the U.S., Canada and global markets alike in the months ahead. Despite the gloomier outlook, Canadian small caps—excluding metals and mining—have already corrected more than what is typical during the early phase of a recession. This suggests that much of the downside may already be priced in, reducing further downside risk even if a recession materializes. For active managers with a long-term focus, this environment presents an excellent opportunity to upgrade portfolios with high-quality businesses trading at discounted valuations.
Over the past six months, we have taken advantage of market inefficiencies to add several high-conviction names that had long been on our radar. Many of these businesses only became reasonably valued as volatility spiked. We believe this has meaningfully improved the quality, positioning and return potential of our model portfolio. While headlines continue to create noise, we remain focused on fundamentals. Our bottom-up, research-driven approach thrives in uncertain markets where quality and valuation matter most. The current environment plays to our strengths as disciplined stock-pickers and long-term investors.
Our portfolio is well-positioned going forward. It features companies with an average return on equity of 14.2%, low leverage—an average debt/EBITDA ratio of just 0.9x—and 25% of holdings in net cash positions. Based on our conservative models, we expect 23.9% annual earnings growth over the next five years. These metrics significantly exceed those of our benchmark and support our confidence in continued alpha generation. From a valuation standpoint, the portfolio trades at 15.4x forward earnings and at a 24.4% discount to our estimated intrinsic value. This level of under-valuation has not been seen since the Covid market lows. Based on our five-year EPS forecasts, this implies attracted annual returns going forward.
Looking ahead, we believe sticking to well-run, financially sound businesses at attractive valuations will deliver strong results. While the short term remains unpredictable, we are optimistic about the long-term return potential of the portfolio we’ve built.
- Dye & Durham – We added to this holding as the stock became undervalued relative to its fundamentals and long-term outlook.
- MDA Space – We increased our holding to reflect our confidence in its organic and acquisition-driven growth trajectory.
- Terravest Industries – We initiated a new position in this industrial equipment leader due to its strong fundamentals, recent acquisition of Entrans and attractive long-term return prospects.
- Sylogist – We trimmed the position for weight management reasons.
- Aritzia and Pet Valu – We trimmed both positions based on valuation discipline and weight considerations.
- Topicus.com – We fully exited after strong performance pushed its market cap beyond our small-cap threshold. Proceeds were redirected into higher-return small-cap opportunities.
Outlook
The macroeconomic backdrop has clearly deteriorated in early 2025. Escalating tariff threats, protectionist rhetoric and rising trade tensions—particularly out of the U.S.—are dampening global economic activity. Business leaders across industries have become more cautious, slowing spending on expansion, capital investments and hiring. As a result, economists are increasingly forecasting a recession that, while self-inflicted, could affect the U.S., Canada and global markets alike in the months ahead. Despite the gloomier outlook, Canadian small caps—excluding metals and mining—have already corrected more than what is typical during the early phase of a recession. This suggests that much of the downside may already be priced in, reducing further downside risk even if a recession materializes. For active managers with a long-term focus, this environment presents an excellent opportunity to upgrade portfolios with high-quality businesses trading at discounted valuations.
Over the past six months, we have taken advantage of market inefficiencies to add several high-conviction names that had long been on our radar. Many of these businesses only became reasonably valued as volatility spiked. We believe this has meaningfully improved the quality, positioning and return potential of our model portfolio. While headlines continue to create noise, we remain focused on fundamentals. Our bottom-up, research-driven approach thrives in uncertain markets where quality and valuation matter most. The current environment plays to our strengths as disciplined stock-pickers and long-term investors.
Our portfolio is well-positioned going forward. It features companies with an average return on equity of 14.2%, low leverage—an average debt/EBITDA ratio of just 0.9x—and 25% of holdings in net cash positions. Based on our conservative models, we expect 23.9% annual earnings growth over the next five years. These metrics significantly exceed those of our benchmark and support our confidence in continued alpha generation. From a valuation standpoint, the portfolio trades at 15.4x forward earnings and at a 24.4% discount to our estimated intrinsic value. This level of under-valuation has not been seen since the Covid market lows. Based on our five-year EPS forecasts, this implies attracted annual returns going forward.
Looking ahead, we believe sticking to well-run, financially sound businesses at attractive valuations will deliver strong results. While the short term remains unpredictable, we are optimistic about the long-term return potential of the portfolio we’ve built.
U.S. Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small Cap Composite (in U.S. dollars), compared to the Russell 2000 Small Cap Index and the S&P 500 Index (as at March 31, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : June 30, 2000
Portfolio Positioning
Our U.S. small-cap strategy outperformed its benchmark in Q1 despite a volatile and unpredictable market backdrop. The quarter was marked by sharp swings and risk-off sentiment, but our focus on high-quality, reasonably valued companies with solid balance sheets helped the portfolio hold up better than broader small-cap indices. Outperformance was driven by strong security selection, particularly in the Consumer Discretionary, Financials and Healthcare sectors. Higher-quality names with strong return on equity and moderate valuations performed well, while microcaps, nonearners and highly valued stocks lagged. Although some of our defensive holdings didn’t provide the downside protection we typically expect, our disciplined investment style helped navigate the chaos.
Sector allocation modestly detracted from relative results. Our overweight in Consumer Discretionary, one of the weakest areas of the market, and lack of exposure to Real Estate, which outperformed, posed headwinds. However, these were partially offset by our underweight in Energy, lower exposure to Information Technology and a favourable tilt toward Financials.
Q1 earnings season added further differentiation. Despite erratic stock reactions across the market, 86% of our portfolio holdings delivered results ahead of expectations. Given the heightened uncertainty caused by U.S. policy shifts, many companies issued conservative 2025 guidance. Still, our holdings largely reported strong fundamentals and resilient outlooks, reinforcing our conviction in their quality. Some price moves lacked clear justification, reflecting the market’s nervous tone rather than company-specific weakness. Nonetheless, our approach of targeting companies with strong operational metrics and limited balance sheet risk proved effective. While we cannot control short-term volatility, we believe staying the course with our high-conviction strategy is the right path. Our positioning entering Q2 remains consistent with our investment philosophy. We continue to favour businesses with strong fundamentals and compelling valuations that we believe will outperform over the long term.
Significant contributors to performance in Q1 were:
- StoneX Group (+19.0%) on strong capital markets performance and consistent organic growth.
- Chemed (+16.4%), driven by its steady hospice and plumbing operations.
- Laureate Education (+11.7%), supported by robust results in Mexico and Peru.
- Grand Canyon Education (+6.4%), outperforming on resilient demand and clear financial guidance.
Stocks that detracted from performance in Q1 were:
- Five9 (-34.7%) and Shake Shack (-31.8%), despite solid financial results, as valuation concerns and macro headwinds weighed on sentiment.
- CCC Intelligent Solutions (-23.3%) and DoubleVerify (-30.4%), on underwhelming guidance and sector-wide weakness in tech.
- Gentherm (-33.0%), due to its exposure to auto tariffs pressure.
Portfolio Changes
Q1 was an active quarter driven by heightened volatility and compelling valuation opportunities across our universe. We initiated four new positions, added to several existing names and exited three holdings. Here were our key portfolio changes in the first quarter of 2025:
- Tetra Tech – We initiated a position after a significant pullback. Its dominant position in water infrastructure and digital IP assets offers durable growth and defensive exposure to sustainability trends.
- Privia Health – We added to this holding for its scalable, capital-light model and strong value-based care outcomes. It offers high retention, strong margins and secular tailwinds in healthcare.
- SPX Technologies – We initiated a stake here after extensive research. Its diversified HVAC and infrastructure exposure, disciplined M&A strategy and high ROIC position it well for long-term outperformance.
- Chart Industries, Pennant Group and WillScot – We completed positions from the prior quarter at compelling valuations.
- Brady Corp. – We exited due to full valuation and ongoing governance concerns over its non-voting share structure.
- Marriott Vacations Worldwide – We sold this position due to rising leverage, weakening fundamentals and limited strategic visibility from management.
- Qualys – We exited this position following underwhelming revenue trends and declining sales productivity.
- Silicon Laboratories – We halved our position here as volatility and cyclicality increased.
- StoneX, Laureate, Chemed and others – We trimmed on strength to redeploy capital into higher-return opportunities.
Outlook
The macroeconomic environment has weakened in early 2025, with rising concerns around tariffs and trade tensions under the new Trump administration weighing on sentiment. Companies across sectors are reporting reduced CEO and consumer confidence, delays in capital expenditures and hiring slowdowns. These developments, coupled with lower R&D and M&A activity, have led many economists to increase the probability of a self-inflicted recession in the U.S. in the months ahead.
Despite the gloomier outlook, U.S. small-cap stocks have already undergone a significant correction since the November 2024 peak—deeper than what’s typically seen during the early stages of a recession. This suggests that a potential downturn may already be largely priced in, leaving limited incremental downside. For active managers with a long-term view, this dislocation presents a compelling environment to upgrade portfolios at favourable valuations.
Over the past six months, we’ve leaned into this opportunity, making several high-conviction additions to our small-cap strategy. Many of these businesses had been on our radar for years and only recently became attractively priced. Our recent investment activity reflects not only our confidence in these companies but also our belief that the market is offering rare entry points for long-term compounding.
We’ve used this period of volatility to enhance the overall quality, valuation and positioning of our model portfolio. In doing so, we’ve further aligned our holdings with businesses that we believe can deliver through-the-cycle performance based on their strong fundamentals and durable competitive advantages.
Looking ahead, we remain focused on fundamentals over headlines. Our approach is grounded in bottom-up, research-driven investing, and the current environment plays to those strengths. While near-term volatility is likely to persist, we believe the long-term return outlook for our portfolio has improved materially.
Our strategy is currently trading at a 15%–20% discount to intrinsic value based on our conservative DCF models—a level of undervaluation not seen since the Covid lows. Portfolio companies, on average, deliver EBITDA margins in the mid-20% range, 20% ROE/ROIC, and have strong balance sheets, with a third in net cash positions. We expect annual EPS growth of 13% over the next five years, including 11% in 2025, based on prudent forecasts.
With all key quality metrics well above benchmark levels, we believe the portfolio is well-positioned for long-term outperformance.
- SPX Technologies – We initiated a stake here after extensive research. Its diversified HVAC and infrastructure exposure, disciplined M&A strategy and high ROIC position it well for long-term outperformance.
- Chart Industries, Pennant Group and WillScot – We completed positions from the prior quarter at compelling valuations.
- Brady Corp. – We exited due to full valuation and ongoing governance concerns over its non-voting share structure.
- Marriott Vacations Worldwide – We sold this position due to rising leverage, weakening fundamentals and limited strategic visibility from management.
- Qualys – We exited this position following underwhelming revenue trends and declining sales productivity.
- Silicon Laboratories – We halved our position here as volatility and cyclicality increased.
- StoneX, Laureate, Chemed and others – We trimmed on strength to redeploy capital into higher-return opportunities.
Outlook
The macroeconomic environment has weakened in early 2025, with rising concerns around tariffs and trade tensions under the new Trump administration weighing on sentiment. Companies across sectors are reporting reduced CEO and consumer confidence, delays in capital expenditures and hiring slowdowns. These developments, coupled with lower R&D and M&A activity, have led many economists to increase the probability of a self-inflicted recession in the U.S. in the months ahead.
Despite the gloomier outlook, U.S. small-cap stocks have already undergone a significant correction since the November 2024 peak—deeper than what’s typically seen during the early stages of a recession. This suggests that a potential downturn may already be largely priced in, leaving limited incremental downside. For active managers with a long-term view, this dislocation presents a compelling environment to upgrade portfolios at favourable valuations.
Over the past six months, we’ve leaned into this opportunity, making several high-conviction additions to our small-cap strategy. Many of these businesses had been on our radar for years and only recently became attractively priced. Our recent investment activity reflects not only our confidence in these companies but also our belief that the market is offering rare entry points for long-term compounding.
We’ve used this period of volatility to enhance the overall quality, valuation and positioning of our model portfolio. In doing so, we’ve further aligned our holdings with businesses that we believe can deliver through-the-cycle performance based on their strong fundamentals and durable competitive advantages.
Looking ahead, we remain focused on fundamentals over headlines. Our approach is grounded in bottom-up, research-driven investing, and the current environment plays to those strengths. While near-term volatility is likely to persist, we believe the long-term return outlook for our portfolio has improved materially.
Our strategy is currently trading at a 15%–20% discount to intrinsic value based on our conservative DCF models—a level of undervaluation not seen since the Covid lows. Portfolio companies, on average, deliver EBITDA margins in the mid-20% range, 20% ROE/ROIC, and have strong balance sheets, with a third in net cash positions. We expect annual EPS growth of 13% over the next five years, including 11% in 2025, based on prudent forecasts.
With all key quality metrics well above benchmark levels, we believe the portfolio is well-positioned for long-term outperformance.
U.S. Small-Mid Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small-Mid Cap Composite (in U.S. dollars), compared to the Russell 2500 Small Cap Index (as at March 31, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : September 30, 2017
Portfolio Positioning
Our portfolio finished roughly in line with the performance of the Russell 2500 Index during the first quarter. While IT, Consumer Discretionary and Industrials were the weakest sectors—accounting for 55% of our portfolio versus 43% in the index—strong stock selection, especially in Consumer Discretionary, helped offset much of the allocation drag.
Amid heightened volatility, portfolio activity increased as we capitalized on dislocated valuations to upgrade the quality of our holdings. We exited three names and introduced three new positions that reflect our continued focus on high-quality, well-run businesses with strong fundamentals and long-term growth potential.
One of the most notable changes this quarter was our shift in Industrials. After years of favouring the sector but finding valuations unappealing, the past two quarters finally offered a compelling entry point. Our Industrials weighting rose from 13.5% at year-end to just over 22% by the end of Q1, shifting us from a 6% underweight to a 4% overweight. Roughly 60% of the funding came from a reduction in Consumer Discretionary, with the remainder from small trims in IT and Financials.
This shift was partly influenced by our view on tariffs. Industrial and product companies can typically pass along higher input costs, while consumer-facing businesses are more vulnerable to a pullback in discretionary spending. Given persistent tariff concerns, reducing our exposure to the consumer felt prudent. We are not opposed to increasing Discretionary weight again, but it would likely require far more compelling valuations.
Looking ahead, we remain focused on selectively adding to high-conviction positions where valuations offer sufficient upside. Our recent moves position the portfolio more defensively while still providing exposure to durable growth drivers across sectors. We believe that the portfolio is well-placed to weather continued volatility and participate in a broader recovery when conditions improve.
Substantial contributors to our Q1 performance include:
- StoneX (+17.3%), due to record earnings, strong organic growth and a seamless CEO transition.
- Chemed (+16.3%), with both its Roto-Rooter and VITAS businesses improved operationally.
- Laureate Education (+12.3%) and Grand Canyon Education (+5.8%), on steady growth and its defensive positioning in a volatile market.
All four companies are executing well against their business plans and continue to offer compelling long-term value.
Substantial detractors to our Q1 performance include :
- DoubleVerify (-30.0%), on continued growth disappointments and volatile earnings.
- Five9 (-33.4%), due to concerns around consumer spending and leadership changes, despite solid results.
- EPAM (-28.6%), dropping alongside the broader IT services sector amid delayed recovery expectations.
- Shake Shack (-31.3%) and CCC Intelligent Solutions (-23.2%), due to broad macro uncertainty, rather than company-specific issues.
Portfolio Changes
In Q1, we made several key portfolio changes to take advantage of valuation resets and improve overall quality and return potential. Below are the main actions we took during the first quarter:
- MarketAxess – We exited after over a decade due to cost growth outpacing revenue under new leadership and limited visibility into future market reacceleration.
- Tractor Supply – We sold on valuation discipline and slowing growth outlook. With over 2,500 stores and maturing unit economics, we felt future returns were unlikely to meet our 15% target.
- YETI – We exited due to rising tariffs, margin pressure from production shifts and concerns about long-term category growth. Competitive intensity and strategy drift added to our decision.
- APG Group – We initiated a position in this leading fire protection and specialty services firm. Its recurring revenue, scale advantages and disciplined acquisition strategy offer strong growth with downside protection.
- Privia Health – We added to this name for its scalable, capital-light healthcare model. High retention, recurring revenue and strong execution in value-based care position it for continued outsized earnings and cash flow growth.
- Construction Partners – We entered after a market pullback. The company’s vertical integration, recurring public infrastructure work and attractive M&A runway support stable margins and long-term growth.
These changes reflect our focus on high-quality businesses with strong fundamentals and long-term compounding potential.
Outlook
Q2 began with one of the sharpest market declines in history outside of a recession. Much of this drop was driven by growing investor concern around the Trump administration’s tariff strategy, which we believe lacks long-term viability. While these policies have disrupted market sentiment, we do not expect them to be sustainable without broader corporate support or a clear economic framework. In our view, some degree of reversal or softening is likely.
The more pressing issue now is how the U.S. Federal Reserve will balance weakening consumer and business activity with persistent inflationary pressures. The path forward may include a shallow, short-lived recession to help recalibrate inflation expectations and bring stability back to both markets and the real economy. Should this scenario unfold, we believe it will also pave the way for a more constructive investment backdrop in the second half of the year.
From a portfolio perspective, the significant market sell-off has already priced in much of the economic risk, particularly for small-cap stocks. The correction from the November 2024 peak has been steeper than what typically occurs at the beginning of a recession. As such, we believe downside risk is now limited and current valuations reflect a highly compelling entry point for long-term investors.
Over the last six months, we’ve taken advantage of market volatility to upgrade our portfolio by adding several high-quality businesses at discounted prices. Many of these companies had been on our watchlist for years, and we were able to invest with conviction once valuations aligned with our return expectations.
Our portfolio remains well-positioned for both ongoing volatility and eventual recovery. The businesses we own have strong balance sheets, durable competitive advantages and the flexibility to navigate short-term disruptions while compounding value over time. These characteristics make us confident in our ability to weather further turbulence and emerge in a stronger position as market conditions normalize.
While we continue to monitor macro developments closely, we remain focused on long-term fundamentals. We appreciate your continued support and are committed to guiding you through this period of uncertainty with discipline, transparency and conviction in the businesses we hold.
- Tractor Supply – We sold on valuation discipline and slowing growth outlook. With over 2,500 stores and maturing unit economics, we felt future returns were unlikely to meet our 15% target.
- YETI – We exited due to rising tariffs, margin pressure from production shifts and concerns about long-term category growth. Competitive intensity and strategy drift added to our decision.
- APG Group – We initiated a position in this leading fire protection and specialty services firm. Its recurring revenue, scale advantages and disciplined acquisition strategy offer strong growth with downside protection.
- Privia Health – We added to this name for its scalable, capital-light healthcare model. High retention, recurring revenue and strong execution in value-based care position it for continued outsized earnings and cash flow growth.
- Construction Partners – We entered after a market pullback. The company’s vertical integration, recurring public infrastructure work and attractive M&A runway support stable margins and long-term growth.
These changes reflect our focus on high-quality businesses with strong fundamentals and long-term compounding potential.
Outlook
Q2 began with one of the sharpest market declines in history outside of a recession. Much of this drop was driven by growing investor concern around the Trump administration’s tariff strategy, which we believe lacks long-term viability. While these policies have disrupted market sentiment, we do not expect them to be sustainable without broader corporate support or a clear economic framework. In our view, some degree of reversal or softening is likely.
The more pressing issue now is how the U.S. Federal Reserve will balance weakening consumer and business activity with persistent inflationary pressures. The path forward may include a shallow, short-lived recession to help recalibrate inflation expectations and bring stability back to both markets and the real economy. Should this scenario unfold, we believe it will also pave the way for a more constructive investment backdrop in the second half of the year.
From a portfolio perspective, the significant market sell-off has already priced in much of the economic risk, particularly for small-cap stocks. The correction from the November 2024 peak has been steeper than what typically occurs at the beginning of a recession. As such, we believe downside risk is now limited and current valuations reflect a highly compelling entry point for long-term investors.
Over the last six months, we’ve taken advantage of market volatility to upgrade our portfolio by adding several high-quality businesses at discounted prices. Many of these companies had been on our watchlist for years, and we were able to invest with conviction once valuations aligned with our return expectations.
Our portfolio remains well-positioned for both ongoing volatility and eventual recovery. The businesses we own have strong balance sheets, durable competitive advantages and the flexibility to navigate short-term disruptions while compounding value over time. These characteristics make us confident in our ability to weather further turbulence and emerge in a stronger position as market conditions normalize.
While we continue to monitor macro developments closely, we remain focused on long-term fundamentals. We appreciate your continued support and are committed to guiding you through this period of uncertainty with discipline, transparency and conviction in the businesses we hold.
Global Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Global Small Cap Fund, compared to the MSCI ACWI Small Cap Index in CAD (as at March 31, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : July 31, 2022
Portfolio Positioning
In Q1, elevated trade tensions and policy unpredictability drove broad-based market volatility, prompting us to trim our exposure to both U.S. and Canadian equities. While we continue to hold a modest overweight to North America, our holdings generally performed in line with regional benchmarks. The pullback created attractive opportunities, particularly in Canada, where several high-quality businesses with little to no tariff exposure were sold off indiscriminately. We took advantage of this dislocation to selectively add to names with strong fundamentals, healthy balance sheets and durable business models. Europe was the clear bright spot in the portfolio this quarter. Our European holdings benefitted from both strong stock selection and timely asset allocation. Improving sentiment across the continent, bolstered by better-than-expected stimulus measures and a growing shift toward economic self-reliance, supported performance. We continue to favour companies with domestic demand drivers, manageable input costs and limited exposure to global trade disruptions.
This quarter reinforced the value of a global small-cap approach. While North American equities experienced a sharp derating—driven by elevated inflation, tariff uncertainty and slowing business investment—our exposure to more stable regions such as Europe and parts of Asia helped mitigate downside.
Our strategy’s consistent tilt toward quality and growth combined with valuation discipline proved advantageous in a risk-off environment. Companies in our portfolio tend to exhibit strong returns on equity, solid free cash flow generation and lower leverage—traits that tend to outperform in volatile markets. While global small caps, as measured by the MSCI ACWI Small Cap Index, fell 3.95% in the quarter, our portfolio declined by just 2.45%, outperforming major indices including the Russell 2000 and S&P 500. Looking ahead, we remain focused on owning well-managed, competitively advantaged businesses with strong fundamentals and attractive valuations. We believe this approach is best suited to navigate near-term uncertainty while positioning the portfolio to capture long-term upside across global markets.
In Q1 2025, key portfolio performers included these names:
- Norva24 (+69.9%), after receiving a takeover offer at a 60% premium, validating its strong growth strategy.
- Befesa (+28.4%), on EBITDA recovery and broad-based operational strength.
- Vusion Group (+15.6%) following new U.S. contract wins, strong backlog growth and increasing adoption its high-margin value-added services.
In Q1 2025, key detractors included these stocks:
- Five9 (-33.2%), as investor concerns around macro exposure and AI disruption weighed on sentiment.
- 5N Plus (-28.0%), due to tariff fears, although its materials are largely exempt and key segments remain robust.
- DoubleVerify (-30.3%), after issuing weaker-than-expected 2025 guidance tied to a single client’s ad spend cut.
Portfolio Changes
In Q1, we actively repositioned the portfolio by adding four new names and exiting several holdings. These changes reflect our ongoing focus on high-quality businesses with strong fundamentals, long-term growth potential and compelling valuations. The following are the key additions and exits, along with the rationale behind each decision:
- Globant – We initiated a position in this global IT services firm amid recent market volatility. While global IT spending has slowed, demand for digital transformation remains resilient. Globant’s focus on AI-driven software, cloud platforms and digital experience solutions positions it well to benefit from future enterprise tech spending.
- Pennant – We added to this position to capture growth in the home health and hospice space. With over 150 operations across 14 U.S. states and a proven decentralised model, Pennant is uniquely suited to scale in a fragmented healthcare market while remaining relatively insulated from shifting regulatory dynamics.
- Tetra Tech – We entered on stock weakness linked to U.S. federal budget concerns. As a global leader in sustainable infrastructure and water engineering services, the company stands to benefit from accelerating investment in environmental resilience and infrastructure renewal worldwide.
- Europris – Norway’s largest discount retailer, was added this stock for its stable margins, strong private-label mix and structural growth potential. We view its disciplined rollout strategy and Swedish turnaround as key drivers of long-term value.
- Aritzia and Silicon Labs – We fully exited these positions as both reached and exceeded our long-term valuation thresholds.
- M&A Research – We divested here based on capital allocation concerns and uncertainty around management stewardship.
- Pet Valu – We rotated out of the position in favour of opportunities with more attractive risk-adjusted return profiles.
- Norva24 – We removed this name from the portfolio following its all-cash acquisition and subsequent take-private transaction.
These changes enhance portfolio quality, improve valuation support and increase exposure to companies with durable growth characteristics and strong execution track records.
Outlook
The macroeconomic backdrop in the U.S. has clearly deteriorated in early 2025. Renewed tariff threats and rising trade tensions under the Trump administration are weighing on business confidence and curbing economic activity. Executives across sectors report delays in expansion plans, hiring, R&D and M&A. Labour market trends have softened, and consumer sentiment is more cautious. Economists increasingly see these developments as warning signs, with the risk of a self-inflicted U.S. recession rising notably over the past quarter.
In Europe, the much-anticipated fiscal stimulus from Germany’s Scholz government has exceeded expectations in scale and ambition. This has sparked a modest uptick in sentiment, but it is too early to see measurable economic impact. Management teams across Europe continue to take a wait-and-see approach, particularly in the face of continued global trade uncertainty. Investment decisions remain conservative, with a clear emphasis on cost discipline and risk management.
Asian markets have displayed relatively firmer sentiment. In China, the policy focus remains inward—aimed at stabilizing both the economy and financial markets. Corporate energy is shifting toward commercialising domestic innovation, particularly in artificial intelligence. The recent rise of Deepseek and the box-office success of Ne Zha 2 reflect a growing confidence in China’s homegrown capabilities. While we maintain limited direct exposure to China, we believe innovation from the region will continue to influence global markets in the years ahead.
Across all regions, the near-term corporate outlook is increasingly shaped by trade policy uncertainty. With global rules being redrawn in real time, many companies are pausing capital expenditures, limiting discretionary investment and prioritising balance sheet strength. While this more defensive posture may dampen near-term earnings momentum, it could set the stage for stronger fundamentals once policy clarity returns.
Against this backdrop, we see current volatility as a constructive environment for disciplined investors. Many of our portfolio holdings are market leaders in their verticals with strong pricing power, healthy balance sheets and durable competitive advantages. These attributes position them well to weather near-term disruptions and potentially gain share in a more cautious operating environment.
We believe the dislocation in equity markets is offering an opportunity to invest in high-quality businesses at attractive valuations—supporting long-term return potential despite the short-term uncertainty.
- Europris – Norway’s largest discount retailer, was added this stock for its stable margins, strong private-label mix and structural growth potential. We view its disciplined rollout strategy and Swedish turnaround as key drivers of long-term value.
- Aritzia and Silicon Labs – We fully exited these positions as both reached and exceeded our long-term valuation thresholds.
- M&A Research – We divested here based on capital allocation concerns and uncertainty around management stewardship.
- Pet Valu – We rotated out of the position in favour of opportunities with more attractive risk-adjusted return profiles.
- Norva24 – We removed this name from the portfolio following its all-cash acquisition and subsequent take-private transaction.
These changes enhance portfolio quality, improve valuation support and increase exposure to companies with durable growth characteristics and strong execution track records.
Outlook
The macroeconomic backdrop in the U.S. has clearly deteriorated in early 2025. Renewed tariff threats and rising trade tensions under the Trump administration are weighing on business confidence and curbing economic activity. Executives across sectors report delays in expansion plans, hiring, R&D and M&A. Labour market trends have softened, and consumer sentiment is more cautious. Economists increasingly see these developments as warning signs, with the risk of a self-inflicted U.S. recession rising notably over the past quarter.
In Europe, the much-anticipated fiscal stimulus from Germany’s Scholz government has exceeded expectations in scale and ambition. This has sparked a modest uptick in sentiment, but it is too early to see measurable economic impact. Management teams across Europe continue to take a wait-and-see approach, particularly in the face of continued global trade uncertainty. Investment decisions remain conservative, with a clear emphasis on cost discipline and risk management.
Asian markets have displayed relatively firmer sentiment. In China, the policy focus remains inward—aimed at stabilizing both the economy and financial markets. Corporate energy is shifting toward commercialising domestic innovation, particularly in artificial intelligence. The recent rise of Deepseek and the box-office success of Ne Zha 2 reflect a growing confidence in China’s homegrown capabilities. While we maintain limited direct exposure to China, we believe innovation from the region will continue to influence global markets in the years ahead.
Across all regions, the near-term corporate outlook is increasingly shaped by trade policy uncertainty. With global rules being redrawn in real time, many companies are pausing capital expenditures, limiting discretionary investment and prioritising balance sheet strength. While this more defensive posture may dampen near-term earnings momentum, it could set the stage for stronger fundamentals once policy clarity returns.
Against this backdrop, we see current volatility as a constructive environment for disciplined investors. Many of our portfolio holdings are market leaders in their verticals with strong pricing power, healthy balance sheets and durable competitive advantages. These attributes position them well to weather near-term disruptions and potentially gain share in a more cautious operating environment.
We believe the dislocation in equity markets is offering an opportunity to invest in high-quality businesses at attractive valuations—supporting long-term return potential despite the short-term uncertainty.
