SECTOR — GENERAL INVESTING 

TWST: We spoke with you about 10 years ago, and the  Global Micro Cap Fund was quite new at that point, so it’s nice to do  an update with you now. But let’s start first with a quick introduction  to Grandeur Peak in general, the firm’s history and what the business  looks like today. 

Ms. Sunderland: Thank you so much for this opportunity to  speak again, almost a decade later. Grandeur Peak was founded in 2011.  From day one, our focus has always been the small-, micro-, mid-cap  space; our DNA has stayed the same. We manage about $4 billion AUM  and invest globally. Our goal has not changed from when we last talked:  finding high-quality businesses that we can own and compound for the  long run, well before they get discovered by Wall Street.

TWST: Is there anything you’d add about why the small-cap  space has always been the firm’s focus, and anything else you would note  about the firm’s overall investment philosophy or approach to investing? 

Mr. Hackett: It definitely has always been our focus, and I like  to use a fishing analogy when talking about why. I don’t know if you fly  fish, but when you fly fish, you want to be in the section of the river that  has the most fish and the least people trying to catch those fish.

I’d say at a pretty basic level, that’s why we’ve focused where  we do, within the micro- to small-cap spaces. There are more companies  and it is less covered and it’s less efficient, giving us more opportunities  to find special companies before the Street does on behalf of our clients.

TWST: Focusing on the Global Micro Cap Fund specifically,  describe the strategy behind the fund. And as we noted, it’s right  around its 10-year history; has anything about the fund’s strategy  changed or evolved in that decade? 

Ms. Sunderland: This is an exciting time for us. We launched  the Micro Cap Fund in 2015, so we just celebrated our 10-year  anniversary, and our team’s very proud that we are ranked one of the top  in the country over that period, despite a lot of headwinds going against us. It’s like you’re in an ocean, you’re trying to sail and you’ve got a lot  of things going against you, but we still managed to come out with a  performance that we’re very proud of.

At its core, the strategy is still the same. We think about a  company as going from $100 million to $1 billion — that’s a 10-bagger  — while going from $1 billion to $2 billion is just a double. So, the law  of small numbers actually works in our favor. It’s a lot harder for Apple to double its market cap, and it would take a few trillion to get there.

We like to take that path that’s less travelled globally, connect  the dots across different regions. For example, we’ve seen how  successful companies like Home Depot and Walmart have been in the  U.S., and we’ll try to go and find those early-stage companies in either  Philippines or Thailand or Mexico and get involved early and apply what  we’ve learned from similar business models elsewhere. We use the term  “global dot connecting.”

One thing that has evolved over that time period of the last  decade is the market cap flexibility. Given the rising cost of being a public  company in the U.S., and many of these companies are staying private  longer, it has been a lot harder to find sub-billion opportunities domestically.

Outside of that, we still have a lot of fun as Spencer and I travel  all around the globe, and we find undiscovered companies. But as a  result, we did expand our upper-bound market cap modestly, from $1  billion to $1.5 billion, which is really small relative to the broader market  but gives us a little bit more flexibility.

“Large companies can often raise capital when they need to, but micro caps often see it as a challenge to do that; it depends on the market. So, they must be excellent stewards of their capital and learn to do more with limited resources. A strong balance sheet gives us confidence a company can survive and thrive in different environments.”

What has not changed is the advantage of being a global investor.  We can really go anywhere the opportunities are without being boxed into a  single geography. So, one of the things you always see is we’ll have a little  bit less U.S., but more international, and part of that is the discovery of  finding all these companies where you don’t have to pay a lot of premium.

TWST: As a global fund, I imagine you start off with a  fairly large potential universe. Walk us through your investment  process, and talk about what criteria you’re specifically focusing on  as you evaluate potential and current holdings. 

Mr. Hackett: Yes, you hit it on the dot, it’s quite a big universe  of companies out there globally. The process all starts with trying to  cover that large waterfront with a lot of quantitative screening. We have  a pretty big team of analysts, and we slice up the world by industry or by  geography. We screen on various thematic and financial metrics, all  trying to find great companies.

A couple things that may be unique to our process are that it’s  extremely bottom-up. Amy mentioned how much we travel. Sitting  down with management teams and walking through their vision for the  company and how they’ve gotten to where they are is extremely  valuable to us in determining which companies we’d like to have in the  portfolio and grow with for a long time. So, really the bottom-up focus  is a big part of our process.

The fun part of being focused on small companies is oftentimes  it’s founder CEOs that we’re meeting with and talking to them about  their baby and developing relationships with them over time.

Another part of our process that I think is unique is our large  analyst pool that’s made up by different industry experts. We have a team for each industry that really helps us understand what trends are going on  and where we stand to benefit the most from certain companies  swimming downstream for whatever reason. That collaboration is  something that really helps us.

Lastly, the global focus and being able to connect dots. Amy  already mentioned trying to find the Walmart of whatever other country  it’s going to be. We’re able to learn from success stories that we’ve seen  in one place and then apply it to other places, which helps us a lot in our  investment process.

TWST: I was reading one of the firms’ recent quarterly  commentaries, and it talked about the firm’s North Star being about  earnings growth, that earnings growth drives long-term price  performance. Could you expand on that and how you integrate that? 

Ms. Sunderland: Yes, that’s always been a North Star for all  our funds, as we believe that the more earnings growth you have over the  long run, the more valuation you create along with rising return on  assets. Over the long term, those factors have historically been shown to  drive stock prices. In micro cap we definitely look at that, but I think  there are two more areas that are key factors to micro-cap investing.

The first one is the management team. We think of them as  captains of the ship. Unlike a large-cap company like Disney or Microsoft, where the business will still function if the CEO leaves —  people can still go to the Disney park — it’s different for micro-cap  CEOs. They can truly make or break that company.

We spend a lot of time evaluating leadership and often, as  Spencer mentioned, founder CEOs treat their business as their life’s  work, and we know that they’re less likely to sacrifice long-term value  for short-term gains.

The second one that we pay a lot of attention to is the balance  sheet. This is critical for smaller companies. Large companies can often  raise capital when they need to, but micro caps often see it as a challenge  to do that; it depends on the market. So, they must be excellent stewards  of their capital and learn to do more with limited resources. A strong  balance sheet gives us confidence a company can survive and thrive in different environments.

So, along with the earnings growth and rising ROA, these are  two other factors that we focus on.

TWST: Can you tell us about a few examples of specific  holdings and why they are attractive? 

Mr. Hackett: One company I’m excited about right now is a  company called AZoom (TYO:3496) in Japan. They’re a small company  that subleases parking spaces across urban cities nationwide. It’s an  interesting model, where they’re able to guarantee property owners monthly income for their vacant spaces, while offering individuals a totally  digital, seamless platform as they look for a long-term parking spot.

As with a number of Japanese industries, this space has been  slow to digitize. It’s a traditional culture and way of doing business,  where paper-based is still really prevalent. AZoom has completely  digitized this area of the market, enabling them to take a lot of market  share in a short period of time. They have a strong track record since  coming public and I believe they’ll continue to do a great job.

Ms. Sunderland: Another example is a small company in  India called Vimta Labs (NSE:VIMTALABS). We followed them for  many years and had multiple interactions with their CEO and the rest  of the management team. Vimta is one of India’s leading contract  research and testing organizations. They were founded in 1984, so they  have a long-term track record. Its core strength is in pharma and  biotech testing, areas where we’ve invested globally and seen strong long-term success.

Vimta is relatively large in India, but small in the context of  the nascent and rapidly evolving industry. We’ve seen really exciting  shifts, including supply chain diversification away from China, greater  reliance on local testing providers, and also multinational companies  trying to reduce cost while maintaining quality and regulatory rigor.

And we found, a lot of due diligence later, that Vimta Labs  meets all those criteria. They focus on safety, quality and compliance  testing, have really strong financials, solid balance sheet, and healthy cash flows.

“We like to stay within our discipline box. We like to find companies before Wall Street  discovers them, so they can compound earnings power without having to pay premium  multiples. So, valuation has always been a hurdle for us as we try to find ones where  we can find some good efficiency and some alpha.”

A large European company that we also own called Eurofins (OTCMKTS:ERFSF) has been a long-term shareholder of Vimta,  which we view as a positive validation of the business. So, we’re pretty  excited about that one.

TWST: Have you found that there are particular sectors/ industries or particular geographic markets accounting for your top  contributors in recent quarters, or are there particular areas where  you’re finding especially good buying opportunities right now? 

Mr. Hackett: I think the beauty of our model is we’re able to  really try to find the best companies wherever they are and no matter  what they do. But specific to your question, I’m a little biased because  it’s near and dear to my heart, but Japan is a place where we spend a lot  of time and have a lot of our portfolio allocated there.

A lot of people just don’t understand how many good little  companies there are over there, especially in the micro-cap space.  Consolidation, M&A, and private equity are way behind other  developed markets, which has left a very fruitful micro-cap market for us to screen through.

Quality niche companies led by conservative management  teams, sometimes too conservative — as evidenced by their over capitalized, cash-heavy balance sheets, that generate strong and  consistent free cash flow characteristics — that’s definitely a place we  focus a lot of our time.

TWST: Are there any areas that you’re intentionally  underweight right now, or that you may, for some investment policy  reason, avoid altogether? 

Ms. Sunderland: Yes, we generally do not play so much in the  oil and gas, utilities, commodity, or highly cyclical, asset-intensive  industries. Those sectors are much harder for micro caps to compete in,  given their scale, capital intensity, and structural disadvantage relative to  the large players. So, we’ve never really had a heavy weight in those.

And in terms of geography, we do not own much in the frontier  markets. We still see a lot of opportunities there, but we see so much  elsewhere that we haven’t really invested in those areas.

TWST: You mentioned earlier your focus really is on  bottom-up research. But among big picture or geopolitical issues,  what’s top of mind for you? How do you integrate that with the  fundamental company research and portfolio construction and  ongoing portfolio management? 

Mr. Hackett: There’s never a shortage of geopolitical and  other macro issues. Things like tariffs and weaker economies, these  affect companies large and small, and we always want to be cognizant of  the macro forces that may impact our companies’ abilities to grow.

We do believe that small and quality companies can often  outrun some of these headwinds a lot better than most.

Specifically at the company level, we build earnings models  for all of our companies, and if a company’s operating in a  geopolitically risky area, we apply a certain country risk premium to  those, which includes things like currency risk and political instability  and other things outside the company’s control, to try to integrate  those risks into our process.

And then at the portfolio level, controlling position size as well  as country and industry allocation weighting can help optimize things  like that across our portfolios.

TWST: The market has been very focused on the mega  caps, and U.S. mega caps in particular. What has that meant for  your fund specifically and your category overall in terms of  performance and in terms of investor interest? And what are you  anticipating for 2026? 

Ms. Sunderland: Yes, for sure, the Magnificent Seven is very  hard to keep up with. Our category, that micro space, can be really  challenging because there simply aren’t that many true global micro  investors. In fact, our Morningstar category and the benchmark have an  average market cap of $4.8 billion, and that’s about 10 times the size of our  fund’s average market cap of about $450 million. So, it’s been a headwind  for us for basically the whole decade that we’ve run the Micro Cap Fund.

Recently we have seen some renewed risk appetite for smaller  micro-cap stocks, and you see that in some of those indexes, the smaller  market cap indexes. That said, if you dig into that data, you’ll see a lot  of that recent performance has been driven by money-losing biotechs or  AI-related names that may not even have revenue, or minimal revenue,  and just a lot of hope, and that’s not where we tend to play.

We remain really focused on steady, high-quality micro-cap  businesses with real earnings power, strong balance sheets, and good free  cash flow growth, rather than chasing the next hot thing. We believe that  discipline is really what compounds the best. But that also means  sometimes in those markets we might have a hard time keeping up,  especially when those themes play hot.

We like to stay within our discipline box. We like to find  companies before Wall Street discovers them, so they can compound  earnings power without having to pay premium multiples. So, valuation  has always been a hurdle for us as we try to find ones where we can find  some good efficiency and some alpha.

What do we see ahead? It’s always hard to predict what the  market will do. But we do think that small and micro caps had a massive headwind over the last decade, and if there’s a reversion to the mean,  there could be a chance they come back.

We think in countries like the U.S., or even Japan or Korea or  anywhere, AI and technology have enabled a lot of entrepreneurs to start  their business, gain distribution and get to their customer, and come to  market with a smarter product at a faster rate. We’re actually still pretty  excited about that space. We think there are going to be a lot of  interesting companies coming out as a result of that.

Again, we want to focus on our core competency: making sure  the company has strong potential and actual earnings and actual cash  flow. But we’re pretty excited about the future.

We still think that inefficiency exists. Many times, we are the  first institutional investor to visit a company’s home offices, sometimes  it might be five or 10 hours off the beaten path in India or Indonesia or  even in the Nordics, or wherever we are.

But what really matters for us is that they have the numbers  and management discipline and the quality to continue to gain market  share and compound that value over time. We will continue to focus on  that, and hope that in another 10 years, when we talk to you, that strategy  hasn’t changed. But there will be some exciting companies coming out  of every part of the world, and we hope to be able to capture those and  start on that ride early.

TWST: On the subject of travel as part of your research,  where have you been recently, and are there any trends or anything  that you’ve learned or observed that readers might find interesting? 

Mr. Hackett: This last year I traveled to Japan a couple times.  I went to Australia in early 2025 as well. Australia has had a unique run  in terms of the big commodities boom with gold, copper, and other  commodity prices, and so that was interesting to be in Australia during  this market trend. Australia has a lot of options that play into that.

In terms of what the readers may want to know from my  travels, I would just say that there are a lot of exciting little companies  out there. The exciting trends they see in the U.S. are not specific to the  U.S. — rather, these can be global trends. I think the future is bright for  micro caps, for sure.

Ms. Sunderland: In 2025, we were in Dubai and Saudi Arabia  and the Emirates, and London. The Middle East, historically we have not  invested there, just a few dabbles. But we have seen a lot of changes and  a lot of development and exciting things are happening there, as the  countries are trying to be less dependent on oil and grow their financial  centers, grow their services, grow local.

Saudi, there’s a lot of change that is happening, so it’s been  pretty exciting to see new faces. We’ve followed a lot of the companies  there for many years, we’ve known some of them, but we’ve never really  dipped a toe in. But last year, after our visit, we did start putting a little  bit of capital to work there. The next 10 years, we think that there are  some exciting opportunities.

The U.K. has always been a really interesting small-cap  market for us, and partly it is the valuations in the U.K. have always been  at a massive discount to the U.S., even with companies with pretty  decent numbers. So, that’s something that we’ve been finding — more  and more attractive valuations that meet our criteria.

Our team has been all over the place. Sometimes it’s hard to  tackle a lot of countries at once. Our team was just in Southeast Asia. I  was in India the year before. There was a team that just went to India not  too long ago. And we do a lot of U.S. travel along with that.

A fun part of the job is to be able to go visit these companies and sit at their home office where they’re the most comfortable and have  them share their vision. Rather than listening to a presentation at a  conference, we prefer to go visit their home offices.

TWST: Any other topics you’d like to include to wrap up?

Mr. Hackett: Something that’s been on my mind recently is  this idea of a small-cap premium. I spoke a couple weeks ago with a  large-cap manager who told me that he thought that the small-cap  premium was dead and going to stay dead forever.

I’ve kind of wrestled with that, and I think it misses a large  point: Math is still math. Amy mentioned our average market cap of  about $450 million. That means that a company needs to add $450  million of value to be a double for our clients, whereas your average S&P  company, I don’t know how many billions or trillions they may need to  add now to be a double for their investors.

Large caps have obviously had a huge run, but I think that  math is still math, and that small companies offer a great diversification  for portfolios. Relative to U.S. large caps, foreign micro-cap growth  companies are trading at a discount of about 50% relative to their long term historical average. I think that’s something relevant for prudent  investors to realize.

I’m biased, but I definitely don’t believe that it’s an asset class  that should be abandoned anytime soon. The opposite, I think it’s a very  attractive one right now.

Ms. Sunderland: To close, this space is super interesting, but  I think you do have to have patience. We do not view it as a higher risk,  which I feel is a misnomer. A lot of times people think small cap is high  risk. We have companies that have histories going back 30, 40, 50, 60  years. They’ve survived all kinds of political unrest and economic  headwinds, and they can still come out strong. To us that testament of  their durable growth can I think be misunderstood by the marketplace.

When I talk about patience, an example would be seeing a lot  of these really interesting Japanese companies that three or four years  ago were undervalued and very much ignored by the market. For a  couple years we did not do very well; people said, “Oh, these companies,  they’re not getting the multiples, they’re not keeping up with the market,  keeping up with the AI.”

But it’s interesting, the same companies that we kept, just  another year later, all their multiples went from 10 to 12 when we bought  them to 15, 16, 20. In just a couple of years, you see the shift to strong  multiple expansion and price performance in Japan. The companies are  still the same as we saw a few years ago, it just took the market a longer  time to realize that.

We don’t know when the market will decide to give that same  appreciation to some micro-cap companies, but we do know that we own  really good companies that we hope will do well over time. We always  believe in the Buffett saying, “the market is a voting machine in the short  run but a weighing machine in the long run.” So, that’s something that  small/micro-cap investors should know — that over time is where you  can really benefit from compounding.

TWST: Thank you. (MN)