Even as U.S. small caps hit fresh highs, Canadian investors may find more value north of the border. Analysts see the energy transition as a structural driver of opportunity, with trillions in capital expected to flow into sectors from electrified transport to grid modernization.
BNN Bloomberg spoke with Dave Barr, CEO of PenderFund Capital Management, who says small-cap valuations in Canada remain compelling on both relative and absolute terms. He highlights high-quality businesses positioned to benefit from long-term themes such as the global energy transition, AI and enterprise software.
Key Takeaways
- Canadian small-cap valuations remain attractive compared with U.S. peers, despite the Russell 2000 hitting record highs.
- The energy transition represents one of the largest capital reallocations in history, surpassing $2 trillion in global investment in 2024.
- Growth sectors include electrified transport, renewable energy, power grids and energy storage, alongside emerging opportunities in nuclear and commodities.
- Policy and innovation must work in tandem to sustain momentum; active management can thrive in this environment.
- Long-term investors should focus on high-quality businesses with structural tailwinds rather than chasing hype-driven sectors.
Read the full transcript below:
MERELLA: Even as the Russell 2000 small-cap index in the U.S. hit a record high this week, my next guest says valuations for Canadian small-cap companies are still very attractive. He sees the energy transition as one of the winning sectors. Dave Barr, CEO of PenderFund Capital Management, thanks for joining us today.
BARR: Thanks for having me.
MERELLA: So the American small-cap index hit an all-time high. Have Canadian small caps benefited from that trend?
BARR: Canadian small caps have actually done quite well this year. In aggregate, we’re very resource-dominated up here in our small-cap market, so a lot of those stocks are driving the returns in the index. Canadian small caps have outperformed large caps or U.S. small caps year-to-date. When we look at the Canadian universe outside resources — more traditional and software companies — there are a lot of interesting opportunities where valuations are still quite attractive. We don’t do as much on the resource side, but there are still many attractive valuations there as well.
MERELLA: Small caps were expected to benefit from rate cuts. Have you seen that?
BARR: We’re definitely starting to see it. With the Russell 2000 at all-time highs, we’re seeing risk-on in the market. Much of that has been driven by unprofitable tech companies, which are long-duration interest rate bets. So yes, we’re seeing risk capital flow into markets because of the interest rate decreases.
MERELLA: Tell us about the themes you’re looking at for Canadian small caps.
BARR: We’ve seen passive investing rise over the past couple of decades. Historically, you could buy a stock and another manager might buy it from you later at a higher price. Now you really have to think about how you’ll get your money out. About six or seven years ago, we started focusing on companies being acquired or tied to big macro trends. One I’ll highlight today is the energy transition. U.S. infrastructure and energy transition spending hit about US$2 trillion last year, an all-time high. It’s going into electrification and renewables. When we see big capital flows and structural tailwinds like that, that’s where we want to be, because that’s where we think we can make money over the next five to 10 years.
MERELLA: Let’s talk about specific stocks. Tantalus is one you like. They’re based in B.C. Tell me more about what they do.
BARR: They make smart grid meters as well as their new product, the TruSense Gateway. It allows a household with solar panels to feed electricity back into the grid in a stable way. Earlier this year, there was a near-miss grid failure in Western Europe due to instability. As more homes add co-generation, battery backups and renewable production, keeping the grid stable is critical. Tantalus was first to market in this space. It’s a massive opportunity for them, with about 30 customers in the field today. The stock has rebounded as they’ve added more customers.
MERELLA: Your next pick is 5N Plus. They’re Quebec-based and make specialty semiconductors. Who are some of their customers?
BARR: First Solar is their biggest customer. They serve niche industries that benefit from these macro trends. With First Solar, for example, they’re part of the U.S. solar production chain. A key differentiator is secure supply. 5N Plus provides North American-sourced materials, which is critical as companies want to avoid dependence on foreign jurisdictions for essential inputs.
MERELLA: Since we’re talking about energy, is that where you’re focusing most of your attention right now?
BARR: About 25 per cent of our time is focused on energy infrastructure and the transition. This is a long-term trend we see continuing. There’s a lot to do in grid stability, grid renewal and renewable energy. And there’s still much to do on the traditional carbon side as well.
MERELLA: On renewables, is Canada keeping pace with the U.S., or lagging behind?
BARR: Most of the globe lags the U.S. in many areas, but Canada punches above its weight in renewables. We benefit from our existing infrastructure and lower carbon footprint. That has supported a lot of technology and development in both traditional and renewable energy. We’ve got many strong technology companies in this space.
MERELLA: We’ve also seen huge money flow into AI companies. Are you seeing that capital move into small and mid-caps, and do you expect that to continue?
BARR: On the AI side, we’ve seen the big winners — Nvidia and other large players. There’s a massive data centre trade happening right now, and our U.S. small- and mid-cap team has benefited from that. In Canada, we haven’t seen much trickle down yet. We do own a great Montreal-based company, Coveo, that trades at a fraction of its peers. It has a core dataset and strong AI functionality, with 20 per cent year-over-year revenue growth. But it’s still under the radar, and we haven’t seen capital flow into those kinds of Canadian names yet.
MERELLA: Dave Barr, CEO of PenderFund Capital Management. Thanks for joining us today.
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This BNN Bloomberg summary and transcript of the Sept. 24, 2025 interview with Dave Barr are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
