What are we looking for?
Canadian-listed companies with effective management teams that can ride out market volatility.
The screen
Management teams play a critical role during times of crisis or when markets act exuberantly, acting as a calming voice to investors and stakeholders, and ensuring the organization is capable of enduring unexpected headwinds. While there are a multitude of ways to measure how effective a management team has is, two measures that demonstrate how effective management have been for shareholders are return on assets (ROA) and return on equity (ROE).
Today, we search for Canadian-listed companies with effective management teams that have delivered superior financial returns to shareholders over the past five years. We use the S&P/TSX Composite Index as our benchmark, and screen for companies in the 95th percentile (top 5 per cent of companies relative to their peer group) for each of the measures used.
- First, we screen for companies with a market capitalization greater than $1-billion.
- Next, we screen for companies that are effective in optimizing the firm’s assets. We use ROA, which measures the amount of profit per dollar of assets and is equal to net income divided by total assets.
- Finally, we screen for companies that are efficient in generating income on investments from common shareholders. We use ROE, which measures the profit per dollar of shareholders' equity, and is equal to net income divided by shareholders' equity.
More about Refinitiv
Refinitiv is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.
What we found
The screen, ranked by the five-year average ROE, produced seven companies that have effective management teams as measured by ROA and ROE.
Dollarama Inc. ranked highest in five-year average ROE. Since going public in October, 2009, the retailer has seen its share price increase by more than 1,400 per cent, significantly outperforming the S&P/TSX over this period. Its growth has come from strategic initiatives, notably the investment by Bain Capital in 2004, which helped the company double its number of stores over the following eight years. Dollarama has benefited from having consistency in its management ranks, with current chief executive Neil Rossy spending more than two decades with the company prior to being appointed CEO. The remaining members of the executive management team have been with Dollarama for between four to 14 years, strongly suggesting that having consistency and tenure at the executive levels can lead to sustained periods of profitability.
CI Financial Corp., which ranked fifth in five-year average ROE, had $194.2-billion in assets under management as of Oct. 8. Despite the market volatility in 2020, CI has seen a boost to Canadian retail flows, which increased by $1.2-billion over the first nine months of 2020 compared with the same period in 2019. CI has grown through acquisition, including a recent entrance into the U.S. wealth management market through its majority stakes in Surevest LLC and One Capital Management LLC. Several members of the executive management team have been with CI for more than a decade, including president and chief operating officer Darie Urbanky, chief financial officer Douglas Jamieson and board chair William Holland, who is the former CEO and has been with the firm since 1989.
Cannabis company Cronos Group Inc. ranked second in five-year average ROE. While ranking last on our list in one-year total return, it has outperformed the broader cannabis sector, which has seen significant declines over the past two years. It ranks in the top quartile of Canadian-listed companies in this sector in terms of total return, demonstrating that management have been strategic in how they have expanded the business. The Cronos management team have diverse backgrounds, with both president and CEO Kurt Schmidt and chief financial officer Jerry Barbato spending large portions of their careers in the consumer goods sector, allowing them to leverage this expertise as the cannabis sector expands into retail channels.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a customer success leader, Refinitiv buy-side and commodities trading for the Americas.
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