The activities of the TSXV over the last four month are worth a look. Since our last note, the TSXV started to recover in mid-December 2019 and was back to previous levels hovering between 575 to 585. Then came February 24th 2020, when the market suddenly realized the extent of the proliferation of the Coronavirus. Last Monday, March 9th 2020, came an "unexpected" oil crisis, that also had not been fully priced-in.
The combination of events drove an historic sell-off. In the past month, The Dow Jones Index (^DJI) is down by -20.81%, The TSX -22.98%, The Russell 2000 (^RUT) -27.65%, and the TSXV (^JX:CA) -31.41%.
Comparing the TSXV drop to individual securities is a good starting point to evaluate the relative damage. Investors should keep this in mind when looking at performance though it certainly not the sole factor on valuation. For example, SIM.V, ACU.V, TK.V, PNG.V, NNO.V and LXG.V under-performed relative to the TSXV in the past three weeks.
Opportunities? Sure but one needs to manages expectations. It can be hours, days, weeks, months or years.
Otherwise, going further back on a 20 year period for the TSXV compared to other indices is quite revealing. While other indices have demonstrated growth, the TSXV has been moving in another direction entirely.
The TSX (82.11%), Russell (105.07%) and DJI (133.09%) are all up but the TSXV is down -60.7% !
It is not difficult to see how last week's performance is the culmination of a major reversal from its early days when the TSXV outperformed all other indices. Since 2011, the TSXV has been on an epic decline.
Yes, a black swan and an actual economic event occurring in less than one month are definitely responsible but all other indices are not at historical lows. The velocity of this decline is unprecedented but the levels reached are not. As a reminder, the TSX and DJI have been on a tear setting records for the last four years. The TSXV not so much.
There are serious issues that need to be addressed. As discussed in the last note, the elimination of mid-size brokerage firms are a significant contributing factor. In addition, Canadian Banks account for a larger proportion of the trading and are active in multiple markets. These conditions are not healthy for an exchange that aims to provide a growth vehicle for junior companies. If the TMX is serious about innovation, it will need to revisit the inner workings of the exchange. What better time for it than now, or at least very soon? In the meantime, keep in mind that movement of individual venture stocks should be evaluated in relation to the index, even if it is at an all time low.
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