Canadian stocks with small market capitalizations are trading at large discounts compared to their large-cap counterparts and a portfolio manager says the sector is primed for growth.

Sajan Bedi, VP & portfolio manager at Canoe Financial, told BNN Bloomberg that in the years following the financial crisis, large-cap stocks thrived amid low inflation and low interest rates, while the rest of the market was “left for dead.”

“What this has done is create this huge valuation gap between the top-heavy, index weights in the large-cap space and the rest of the market,” Bedi said in a Wednesday television interview.

“For example, small-caps stocks are trading at their widest discount relative to large-caps in at least 20 years, and we think that this creates an attractive set-up for the sector to outperform from here.”

Bedi recommended Definity (DFY TSX), Spin Master (TOY TSX) and Element Fleet (EFN TSX) as his top picks in the Canadian small-cap space.

Neither Bedi nor his family hold shares of the stocks listed above, however his firm and its clients do. None of the companies mentioned are investment banking clients at his firm.

For the full interview, click on the video at the top of this article.