Matco Opportunity Funds, Portfolio Manager: Small Caps, Big Potential

Transcript

Opening conversation: What's that one area? Yorkville? No, Yaletown. Yaletown. Yeah. Yorkville's in Toronto. Yaletown’s really nice, but it's really expensive. Yeah. And then Gaslight used to be nice, but it's so close to East Hastings. Yeah. I once had a bottle in a paper bag thrown at my head as we left a restaurant. We meant to turn left towards the Gaslight district. We turned right towards East Hastings, and some guy threw a brown bag with a bottle inside it at us. Wow.

Trevor: So, Anil, you've had a fairly story career so far. Maybe just tell us a little bit about it.

Anil: Thanks, Trevor. Yeah. It's been a long, interesting journey. I started my career with the Alberta Treasury Department back in 1990. Back when people remember Jim Dinning was the finance minister and Ralph Klein was premier. Yeah. Worked there for about three years. In a number of different divisions, including investment management division which is now AIMCo. Left that and moved to Calgary and worked for Bissett and Associates in the mid 90s, initially as a fixed income portfolio manager. Did that for about 3- 4 years, then moved to Phoenix in the late 90s during the internet boom and bust. Did some internet startups. Paper millionaire almost went public. Decided to move back to Calgary in December 2000, and was the head of research for another firm here based in Calgary. Ran a global equity portfolio for over 15 years, traveling around the world meeting with management teams, and then joined Matco in November of 2018.

Trevor: 2018, so it's been eight years, I guess. Almost coming up on eight years. Yeah. Bissett and Associates, you started on the fixed income side. How long were you on the fixed income side with Bissett and Associates?

Anil: Pretty much the whole time but again, the firm was pretty small. So we also sat in on the investment committee and the equity meetings and learned the whole process on the equity side and fixed income side.

Trevor: Yeah, I was going to say. So you spent a little stint on the fixed income side, kind of getting your bearish bug out of you because Anil being one of the more typically optimistic or bullish portfolio managers, but also having a balanced view, I think when appropriate as well. So you've been with Matco for eight years now. I guess it's always a little bit cliche to say, but time does fly because sometimes it feels like that long, but sometimes it feels like just a few years ago. Now with Matco, maybe give us a sense as to what you spend most of your days doing here with Matco.

Anil: Sure. Spend most of my time managing two funds the Matco Opportunities Fund, which is the small and mid-cap fund, and the Matco Canadian Equity Income Fund.

Trevor: So today we're going to dig mostly into the Opportunities Fund. We'll spend another conversation digging more into the Canadian Equity Income Fund. For those who might be a little bit less familiar, give us kind of the high level viewer Coles Notes: What is the Opportunities Fund itself?

Anil: The Opportunities Fund is really focused on finding tomorrow's leaders today, finding those emerging companies that you know are going to be $1 billion plus companies five, ten years down the road. And there's a great opportunity set here in Canada because the market is very efficient for small to mid-cap companies. There's not that many investors left in that space looking at that, because over the last decade, most large investors have gone towards large-cap companies rather than focusing on the small to mid-cap companies. So to me, I see it as a very inefficient market. And then there's an ability to make excess returns better than large-cap over the long term.

Trevor: Right. So when you say I guess it's a little bit less covered or a bit more efficient in a sense, maybe there's some more or a lack of price discovery in the right prices haven't been really put on stocks of some of the more emerging companies. With that in mind, as kind of an overview of the Opportunities Fund from your perspective. Who is it best built for from the investment side? Who is the Opportunities Fundd for and what type of investor does it suit?

Anil: It's really for those investors who are looking for growth in their portfolio. There is going to be a little bit higher volatility in the fund, just given the nature of small- to mid-cap companies. But I think it's for really for investors who are looking for faster growth and who typically have a long time horizon and can handle it, knowing that this is a minimum three-to-five-year investment, just put it away. Forget about it and let the fund manager do their job.

Trevor: So you've been here for a little almost coming up on eight years. And how long have you been at the helm of the Opportunities Fund more or less?

Anil: About seven years now.

Trevor: And now that it's been seven years, obviously the markets give us ups and downs and the Opportunities Fund kind of ebbs and flows with that. What do you enjoy the most about managing the Opportunities Fund?

Anil: I think it's the breadth of management teams that I meet. You know, as I cover so many sectors, I get a chance to see what's really going on across a number of different industries. And I enjoy grilling management teams. To be honest, I enjoy getting the details, getting under the hood, trying to understand their business, their industry, where it's going, and then coming back and saying, okay, is this a good opportunity for the fund or is there a better opportunity within the fund? Or is there another idea that I can leverage what I know from learning from these meetings?

Trevor: Yeah. Now you're segwaying me perfectly because you said something under the hood. So let's dive under the hood a little bit more. And you kind of alluded to this, but just for clarity sake. What are the market capitalizations or I guess more simplistically, the size of the companies that the fund is looking to invest in typically.

Anil: Well, we have a big sandbox. I mean, I've given myself the biggest toolbox to make money. So our range is really from micro-cap $10 million all the way up to $10 billion, because we can go up to 30% outside of Canada. So there's a wide swath of companies, but our sweet spot is really those companies between $100 million and $200 million that are not covered. But again, we're looking for those operators that could double or triple over three-to-five-year period.

Trevor: And to maybe the outside investor $100 million to $200 million might sound like a lot of money, but I guess in the market cap realm or size, a company world, it's really not that big. Those are the more the emerging type of companies. So we talked about market cap now from a sector perspective. Are there any inclinations sector wise or is it more about the company?

Anil: We pretty much look at every sector except for one, which is biotech, meaning in terms of companies that are looking for new discoveries in terms of medical discoveries, or bringing new drugs to market. Just I've always followed that industry, but it's very capital intensive in it's more based on hope rather than financials. So I've kind of stayed away from that. I've never invested in biotech companies, but it's a sector that I've watched just to see what's going on in terms of leading other sectors that could be opportunities.

Trevor: Now, in the universe, there's a lot of people who invest in ETFs or in index funds. The S&P 500 has 500 companies. The Canadian market has ETFs that have 800 plus companies. How many companies typically sit in the opportunities portfolio?

Anil: So typically on the small to mid-cap names we have between 25 to 35 companies. Right. Right. And then also we've built a small micro-cap portfolio of five to eight companies. On top of that kind of planning the seeds for the future.

Trevor: So it's pretty selective.

Anil: Very, very selective. Yeah. Compared to the benchmark or the ETF, which has, you know, 225 companies in it.

Trevor: Yeah. And a lot of that's referred to I mean some people talk about tracking or others talk about active ratio within a fund. So it's obviously a very active fund. Now where how does the Opportunities Fund fit into somebody's investment account or I guess within their broader portfolio from your perspective? Should it be 100% of what they're invested in, maybe 10%, or what does that spectrum look like to you and why?

Anil: Well, it really depends on the individual's risk tolerance and their overall wealth level and where they are in their stage of life. I always say anywhere from 5% to 40%, again, depending on your risk level. So it's really hard to give a hard and fast rule that suits everyone, but it's really a customized approach. Again, it's going to be a little bit more volatile, but again this is your growth engine within your portfolio. Yeah. But I will say that it's going to be different than the benchmark or indices which are very resource concentrated. You know this portfolio is very diversified. Even though it's small to mid-cap stocks. It's never going to be 60% to 70% resources, which is really what the benchmark consists of today.

Trevor: Yeah. Now I'm going to ask a two part question. But they are related. If somebody does invest in the Opportunities Fund, what do you think it has to offer that their other holdings might not specifically.

Anil: Well, I think the biggest thing is faster growth because I'm looking for companies ahead of inflection points in terms of revenue or earnings growth and typically going to get re-rated. So there's a faster or there's a potential for faster capital compared to their other parts of their portfolio.

Trevor: Yeah. Okay. Now here's the second part. We kind of compared it to something else that might be in their portfolio. What if we compared it to other small-cap or opportunities like funds that are out there? How do you think Matco’s might differ from those ones, even though they might be in the same category?

Anil: Well, I think the biggest thing is our fund is very nimble, given the size, roughly about $120 million. I can look at a lot more different, smaller companies than some of the bigger small-cap fund managers can. You know, they typically have higher liquidity constraints. They need a higher market cap, and they typically need their companies to be profitable. Again, I'm looking for smaller companies that are at the verge of profitability that they'll get a re-rate and get more research coverage. So I've got an opportunity to basically look at smaller companies that are growing faster, not well covered by the sell side or by fund managers, and get in early and grow with the management team as they continue to execute.

Trevor: And I got to almost comment as opposed to question. It's almost impossible for me to not think that being nimble in this type of market is incredibly valuable. We've got a unpredictable U.S. administration. We've got a conflict geopolitically in the Middle East. We've got ongoing trade wars around the world. So I presume that the ability to be nimble position wise in terms of what you select or even entering, trimming or adding to positions, has to be incredibly valuable for the fund. Again, this is a bit deeper under the hood when you're looking at companies. We kind of talked about market cap and sector, but getting even more company specific. Are there particular types of investment characteristics or company profile items that you're looking for when you're trying to select an investment or kind of really getting down to the nitty gritty and picking something for the portfolio?

Anil: Well, I’d say we're looking for growth companies focused on three main sectors or themes that have been playing for the last really three, three and a half years. And the first one is higher geopolitical risk. And how what we've been playing that theme through is defence stocks, space stocks, critical mineral companies and gold and silver companies. The second theme we've been playing is basically rising power consumption. So basically the second or third derivative of AI and data centre growth. So looking for the companies that can help the North American grid get more efficient. And then the third theme we've been playing is through infrastructure renewal. As we know infrastructure throughout North America is at least 50 years old. So we're looking for those companies that can benefit from growth of renewing infrastructure, whether that's digital or critical mission technology infrastructure.

Trevor: So those three themes, it sounds like the kind of serve as your current compass or your current North Star to try and navigate a pretty broad universe overall. Right. Are there any types of companies or even maybe themes that you're or the fund tends to navigate away from?

Anil: Well, I would say try to focus on companies that I can understand simply. I've learned the hard way that you don't want to invest in a company that's over diversified or has too many variables in their underlying business. For example, I've always stayed away from besides biotech is lumber companies. Lumber companies have been cheap, but there's so much regulatory issues and free trade issues with that sector that I’ve stayed away from. Also kind of stayed away from the food processing industry because sometimes those stocks look cheap, but then something comes out of the blue that kind of blows up that management wasn't expecting. So, part of my job is not only for companies that are growing, but look out for the bombs that could have in the portfolio. So it's like, stay away from those businesses that are too complex or have too many moving variables that something could come out of the blue and company would have to cut their guidance and the stock not do well.

Trevor: Yeah, I might even tie what you just said to something you said earlier because you said you like to grill management teams and kind of hold their feet to the fire as it relates to their business model or their current fiscal plans or business plans. I suspect that's a bit easier to do when you can not necessarily simply understand their business, but it's a bit more tangible to you, and you can kind of wrap your heads around where their cash flow is generated and how their revenue grows. If you can't really do that, it's probably hard to grill them and kind of hold their feet to the fire. If the business model is just overly complex. So you mentioned those three themes as your current compass. How have those themes played out and how have they impacted what's in the portfolio so far this year in 2026?

Anil: They've actually worked out pretty good. We were early on a number of themes, especially the defence and space theme, gold and silver. So they've done very well for the portfolio. They typically make up 65 to 70% of the portfolio. But again, we don't fall in love with those themes. For example, when gold was over $5,000 and silver was over $100. We were trimming our exposure as everyone else was talking about gold and silver every day and falling in love with the sector. So we're not married to any position like I always say it's okay to fall in love with your puppy, don't fall in love with your stock. Again, our goal is to make money to find those good companies. But we know that things will get overvalued and we always take money off when people are falling in love with a certain sector or a certain theme.

Trevor: You don't fall in love. Yeah. Fall in love with your puppy, not your portfolio. It's a good one. But you have a cat, don't you?

Anil: No, no. Oh, no. Now I have a dog.

Trevor: Oh, you have a dog. Okay, so you can relate to that specifically. Would you tell the people? Yeah. Now just speaking a bit more broadly, you've been managing the Opportunities Fund for about seven years under your helm, I guess, or even just throughout the evolution of the fund. What are you most proud of as it relates to the Opportunities Fund?

Anil: Well, I think last year we were fortunate to win the 2025 London Stock Exchange Group (LSEG) Lipper Fund Award for Best Fund Over Three Years in the Canadian Small/Mid Cap Equity category. So that was a nice feather in the cap. That was unexpected, but that just gives me more motivation to work harder for the clients to make money. And you know, I love meeting with management teams. I typically meet with 120 to 140 a year. And, you know, again, I love finding out what should I look for in terms of making money and also what are some bombs to avoid? So, you know, I love learning and making money for clients.

Trevor: Yeah. All right. Now we've kind of talked about the fund 2026 so far. We've got a few months left in 2026. And we tend I know within Matco’s investment management team to stay ahead of the curve. We're often thinking quite far into the future as it relates to the fund. Are you focused on trying to figure out how things are going to transpire and unfold over the next few months, or does it kind of go back more to investment process, or how do you kind of match those two items, the uncertainty that's out in the world, but kind of the day to day management of both risk and return in the fund?

Anil: Well, Trevor, I'm kind of looking always at both things of macro, of what's going on around the world in terms of investments, government policy, and then trying to tie that to bottom-up analysis and say, what themes do I think are going to continue to work over the next few years? Besides our core themes, I'm looking at what are some short term themes or sectors that are beat up that people you know have left for dead, and saying those are opportunities, while everyone else focused on other sectors that are doing well now but are not going to be the winners next year.

Trevor: Okay, now I'm going to hold your feet to the fire. Just a hair here for the remainder of the year. Are you a little bit more optimistic or a little bit more cautious. And then for 2027, where do you fall on that spectrum as well?

Anil: Well, looking over the next one or two months, I'm cautious. Just that we've had a pretty good market this year and we've really haven't had a pullback so short term in the next month or two. I'm cautious, but I would see that as a buying opportunity. I don't see any recession on the rise in Canada and the US over the next year. So I'm bullish. So I would say to people, if you're sitting on cash or looking to get back in the market over the next one or two months, if we do have a pullback heading into the US midterm elections, I would use it as a buying opportunity. If you're a long term investor. I would still stay fully invested and ride it through, because I still think we're only in the top of the second inning for small to mid-cap companies.

Trevor: Excellent. Now, is there anything that excites you about the Opportunities Fund for the next few years? Not speaking from like an outlook perspective, but just the management of the fund as a whole?

Anil: I think the biggest thing that would excite me is the three themes that we've been investing in for the last three years. I still see those as secular themes. And for me, the challenge is to find the best companies around the world within those themes and the fact that we can go up to 30% outside of Canada. I'm looking forward to adding some more international exposure within those themes in the portfolio.

Trevor: Okay, now, outside of the day to day and managing the Opportunities Fund, and I have to almost comment because I know you're passionate about the Opportunities Fund. You're passionate about small-cap. I see you in the office on weekends regularly working on companies. But when you do carve out some time, not on the money management front, what do you enjoy and what kind of keeps you some brain elasticity? Not working on investment management.

Anil: I mean, big into cycling, I enjoy cycling. That's kind of my release valve where I'm not thinking about stocks, the portfolio when I get on the bike and just enjoying the weather or the beautiful countryside. So I think, you know, just getting back on my bike and giving my brain a break from the fund.

Trevor: All right. I think that's a good overview of the Opportunities Fund. Like I said before, we've been providing monthly updates for our investors, which I think they've been enjoying. But often I get the question from those who have just started watching them, what do you guys manage again? So we wanted to kind of reintroduce each of our mandates. And even for those who might be familiar with what we manage, just give them a bit more insight to the portfolio managers as well as the investment strategy itself.

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