My guest on the show today is Ryan Telford, Head of Evidence-Based Research at MicroCapClub. In this episode, Ryan breaks down the performance and methodology behind the MC Guts MicroCap Index — a quant-driven benchmark launched by MicroCapClub to track microcap stocks in the U.S., Canada, and Europe.
We discuss why Canada and Europe are outperforming while the U.S. lags in 2025, sector rotation, and how Ryan’s “GUTS” framework — Growth, Undervalued, Timing, and Sentiment — identifies overlooked opportunities in the microcap universe.
Ryan also shares how the index filters for quality, liquidity, and momentum, and how his research is challenging some of the conventional wisdom around dividend payers, ROIC, and the 52-week low strategy.
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Summary:
This podcast summarizes a discussion with Ryan Telford, Head of Evidence-Based Research at MicroCapClub, about the performance and methodology of the newly launched MC GUTS Microcap Index. Designed to track microcap stocks in Canada, the U.S., and Europe, the index applies a quantitative GUTS framework—Growth, Undervalued, Timing, and Sentiment.
The index has shown strong YTD (Year-to-Date) performance in 2025, significantly outperforming the broader Russell Microcap Index (IWC), especially in Canada and Europe. The U.S. component has lagged, impacted by geopolitical factors, including tariffs. Resource-heavy segments like Canadian gold miners have driven outperformance, and European markets appear to present underexploited quantitative opportunities.
MC GUTS Microcap Index: Overview & Performance
A. Index Framework
Covers microcaps in Canada, the U.S., and Europe.
Applies four core quantitative factors: Growth, Undervalued, Timing, and Sentiment (GUTS).
Tracked and rebalanced monthly.
B. Year-to-Date Performance (as of July 2025)
MC GUTS Microcap Index (Combined): +16.5% YTD (in USD)
IWC (Russell Microcap Index): –1.6% YTD
S&P 500 and NASDAQ: Approx. +8% YTD (referenced for context)
C. Regional Performance
Canada
MC GUTS Microcap Canada: +17% YTD
S&P/TSX 60: +9.4% YTD
Key Drivers:
Heavy weighting in resource stocks, especially gold miners, fueled by high gold prices ($3,400+).
"There is a lot of gold in this strategy right now."
Europe
MC GUTS Microcap Europe: +19% YTD
Europe Small Benchmark: Low double-digit returns
Key Drivers:
Diversified sector mix
"Capital moving out of the U.S. into Europe"
Europe's low valuations attracting global investors
"Quant strategies aren’t as popular in European markets," potentially creating more alpha.
United States
MC GUTS Microcap US: –3% YTD
Underperformance Drivers:
Tariffs: “More harm done to the U.S. than globally”
Dilution & Stock Offerings: High frequency across microcaps
Earnings Misses: Market punishing weak results more harshly than in previous years
D. Historical Performance
Since 2015: CAGR of 19.7%
Strategy tends to outperform in down markets—2025 being a prime example.
Index Methodology & Portfolio Construction
A. Core Principles
GUTS Factors drive stock rankings.
Companies are scored 0–100 relative to peers, and top-ranked names are selected.
Sector-agnostic: No sector balancing. If 80% of Canada’s top names are in mining, the portfolio reflects that.
Long-only: No shorts or hedging.
Monthly rebalancing ensures fresh positioning.
Turnover: U.S. (56%), Canada (53%), Europe (74%)
B. Liquidity Filters
Price floor: ≥ $0.10/share
Volume floor: ≥ $20,000/day or €20,000/day
Exclusions:
OTC pink sheets
Utilities, financials, REITs (low volume/structural complexity)
Global universe: ~4,000 stocks
Portfolio size: 240 stocks
U.S. (100), Europe (100), Canada (40)
Currencies: Traded in native denominations; performance reported in USD.
No currency hedging is applied.
C. GUTS Factors Explained
Growth:
Focus on sales growth and earnings growth
Especially valuable for cyclical microcaps
Undervalued:
Seeks low-valuation stocks
“A low valuation by itself doesn’t really tell you a whole lot… but combined with growth, timing, and sentiment—it can create unique opportunities.”
Timing:
Price and fundamental momentum indicators
“Stocks that already have some interest can be a nice signal.”
Sentiment:
Analyst rating changes
Short interest: Avoid highly shorted stocks
Institutional ownership: Viewed as a proxy for “smart money” discovery
Evidence-Based Research at MicroCap Club
Ryan Telford leads MicroCap Club’s quantitative research forum, which features 22+ research articles spanning the U.S., Canada, and Europe.
Notable Research Topics:
The MicroCap Road Map: Positioning pre-revenue to mature microcaps
ROIC Drivers: Return on invested capital metrics
52-Week High vs. Low: "It’s not the low that outperforms"
Institutional Ownership: Signals of quality
Dividends: Good vs. poor yielders
EBITDA vs. Net Income: Metric comparisons for effectiveness
Russell IWC Analysis:
Index is overweight biotech, healthcare, and financials
Includes many unprofitable names
Served as a core rationale for launching the MC Guts Index
New Magic Formula for Microcaps:
Update to Joel Greenblatt’s formula
Replaces traditional quality factor with ROIC group factor
Uses a hybrid value screen for improved performance over 10 years
These articles are exclusive to MicroCap Club subscribers behind a paywall.
Final Takeaways & Market Outlook
Volatility Defined H1 2025:
U.S. microcaps suffered
Canadian and European microcaps thrived
Tariffs Remain a Key Unknown:
Telford: “We now have a better idea of what tariffs are and what their impacts are… but it’s something to keep watching.”
Earnings Misses Hit Hard:
“Market reactions to earnings misses have been a bit harsh lately.”
2025 is Unusual:
Telford describes it as “kind of a unique period” without obvious historical parallels.
Contact Information
MicroCapClub:
Visit the evidence-based research section or search for Ryan Telford
Twitter/X:
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