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Intelligence

Eleven industrial stocks that meet our criteria in the North American markets

What are we looking for?

High quality industrial names whose short-term operational returns continue to improve.

The screen

We screened the industrial sector of North American stock universe, focusing on the following criteria:

  • A market capitalization greater than $250-million;
  • A 12-month change in economic value-added (EVA) greater than 200 per cent – a positive figure shows us that the company’s profit is increasing at a faster and greater pace than the costs of capital. The EVA is the economic profit generated by the company and is calculated as the net operating profit after tax (NOPAT) minus capital expenses;
  • A 24-month change in EVA greater than 200 per cent;
  • A five-year average return on capital (ROC) of more than 10 per cent. This is a profitability ratio that measures the returns expected for both debt and equity investors. By including such criteria, we are looking for companies with an excellent long-term track record.

For informational purposes, we have also included recent stock price, dividend yield and one-year return.

Log in to you account to get additional information or to modify the original screener

 

Canadian ETFs: Increased Competition Lead To Lower Fees And An ETF Provider To Exit The Industry

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: October’s launches and terminations.

As competition is getting increasingly fierce, the cost of ETFs is becoming lower and lower. An ETF provider announced that it is exiting the ETF market by selling its Canadian ETF subsidiary to another sponsor.

CI Financial Corp., the parent company of CI Investments which manages the CI First Asset Exchange-Traded Funds, will acquire WisdomTree’s Canada ETF business. Upon completion of the transaction, CI will add 14 TSX-listed ETFs with $958 million in assets (as of November 4, 2019) to its current ETF family. The WisdomTree Canada ETFs will be rebranded CI WisdomTree ETFs and WisdomTree will continue as the index provider for the WisdomTree Canada ETFs that currently track WisdomTree’s proprietary indexes. WisdomTree Canada also announced that it will be terminating WisdomTree U.S. High Dividend Index ETF on or about January 31, 2020.

The race to lower fees continues as investors are more aware of the effect of fees on their returns. Vanguard cut the management fee on one of its largest equity ETFs, the Vanguard FTSE Global All Cap ex Canada Index ETF (“VXC”), by five basis points from 0.25% to 0.20%. In addition, Vanguard has also reduced the total cost of ownership with the VXC by simplifying the structure to remove a second layer of taxation with a lower withholding rate.

Horizons ETFs also announced that it lowered the management fees on three of its technology sector ETFs and its ESG ETF by up to 23 basis points.

Source: Inovestor Inc.

In new launches, IA Clarington introduced Active ETF Series for three additional mandates, the IA Clarington Floating Rate Income Fund (“IFRF”), IA Clarington Global Allocation Fund (“IGAF”) and IA Clarington Strategic Income Fund (“ISIF”). Active ETF Series provide access to the same strategies, exposures and portfolio managers as iA Clarington’s standard mutual fund series, but in an investment that trades like a stock.

Source: Inovestor Inc.

IFRF seeks to generate a stream of current monthly income by investing primarily in senior floating rate loans, other floating rate securities and debt obligations of investment grade and non-investment grade North American and global corporate issuers.

IGAF combines a concentrated global equity portfolio with a high conviction U.S. and global fixed income allocation. Security selection is driven by bottom-up fundamental research. Managers look for valuation disparity in the market place to position the portfolio where the greatest risk/reward opportunities lie, which typically runs counter to macro trends.

ISIF seeks to provide a consistent stream of income and capital appreciation by investing primarily in Canadian equity and fixed income investments. The fund may invest up to 49% of its assets in foreign securities.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc.

Wave of new products hits ETF market

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: September’s launches and terminations.

The Canadian ETF industry ended September with assets under management of $188-billion. A wave of new products was launched during the month and three providers announced ETF closures.

New additions include two alternative ETFs from AGF Investments, the AGFiQ US Market Neutral Anti-Beta CAD-Hedged ETF (“QBTL”) and the AGFiQ US Long/Short Dividend Income CAD-Hedged ETF (“QUDV”). Each of the ETFs charges a management fee of 0.55%.

QBTL seeks performance results that correspond to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index (CAD-Hedged). The index is market neutral and sector neutral – meaning the number of long and short positions in each sector in the index approximate the weighting of that sector in the index universe. It is designed to capture the spread return between the long positions on low-beta companies and short positions on high-beta companies.

QUDV seeks performance results that correspond to the price and yield performance, before fees and expenses, of the Indxx Hedged Dividend Income Currency-Hedged CAD Index, a sector neutral index which is designed to measure the performance of a strategy utilizing three portfolios: long positions on high dividend paying companies, short positions on no or low dividend paying companies, and a long position in the Indxx Cash Index.

The industry is saturated with over 700 ETFs in the Canadian universe, ETFs that are not lucrative are being terminated or merged with other funds. For instance, as a result of a purchase and sale agreement, whereby Hamilton ETFs will acquire the management contract of Purpose Global Financials Income Fund (“PFG”), PFG will merge into the Hamilton Australian Financials Yield ETF (“HFA”), effective on or about October 25, 2019.

Source: Inovestor Inc.

As investors are increasingly aware of effects of fees on their returns, asset managers are lowering fees to stay competitive. Mackenzie Investments slashed fees on its traditional index ETF suite by up to 10bps, making these ETFs among the most affordable ones in their respective categories.

Source: Inovestor Inc.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian market sees flood of new ETFs in August

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: August’s launches.

The Canadian ETF industry reached a new record high of $186-billion in assets under management at the end of August. The momentum of ETF launches is not slowing down with 14 additions to the Canadian ETF product line-up, including a unique ETF by First Trust Canada and eight new ETFs by RBC iShares.

First Trust launched an ETF alternative to structured products, the First Trust Cboe Vest U.S. Equity Buffer ETF – August (AUGB.F). It seeks to shield investors from the first 10 per cent of losses, based on the price return of the SPDR S&P 500 ETF Trust (SPY), while capping returns at pre-determined levels over the target outcome period. Specifically, the fund’s investment objective is to provide unitholders with returns (before fees, expenses and taxes) that match the price return of the SPDR S&P 500 ETF Trust, up to a 13.18-per-cent cap (before fees, expenses and taxes), while providing a buffer against the first 10 per cent (before fees, expenses and taxes) of a decrease in the market price of the underlying ETF over a period of approximately one year – from the third Friday of August of each year to on or about the third Friday of August of the following year.

RBC iShares expanded its asset-allocation ETF offering with the introduction of three iShares ETFs, the iShares Core Income Balanced ETF Portfolio (XINC), the iShares Core Conservative Balanced ETF Portfolio (XCNS) and the iShares Core Equity ETF Portfolio (XEQT). Each of them has a management fee of 0.18 per cent. The new funds add to the iShares Core ETF Portfolio offering. One-ticket ETF portfolios have gained popularity among investors. These DIY funds provide simple, low-cost and diversified investment solutions that are slowly replacing the need for robo-advisers. All the major ETF providers offer one-ticket solutions: RBC iShares, BMO, Vanguard and Horizons.

RBC iShares also introduced five single factor ETFs earlier this week. Each ETF offers exposure to a distinct style of investing – Quality, Momentum, Value and Size. The iShares Edge MSCI USA Quality Factor Index ETF (XQLT), the iShares Edge MSCI USA Momentum Factor Index ETF (XMTM) and the iShares Edge MSCI USA Value Factor index ETF (XVLU) track the MSCI USA Sector Neutral Quality Index, the MSCI USA Momentum Index and the MSCI USA Enhanced Value Index, respectively. The iShares S&P U.S. Small-Cap Index ETF (XSMC) and the iShares S&P U.S. Small-Cap Index ETF (CAD-Hedged) (XSMH) seeks to replicate, to the extent possible, the performance of the S&P SmallCap 600 Index and the S&P SmallCap 600 Index (CAD-Hedged). The addition of XSMC and XMSH further broadens RBC iShares’s comprehensive range of U.S. equity exposures, including total market, and large-, mid- and small-capitalization exposure.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian ETFs: Two new providers, two exits amid competitive atmosphere

In this research report created this week for The Globe And Mail, we look at Canadian ETFs: July’s launches and terminations.

Competition remains fierce in the Canadian exchange-traded fund industry. As two new ETF providers enter the market, two others announce their exits. The new market players introduced suites of innovation-focused ETFs and alternative funds.

Emerge Canada Inc. launched five actively managed thematic ETFs on NEO Exchange. They focus on innovative sectors including genomics and biotech, autonomous tech and robotics, AI and big data, and fintech. The suite will be subadvised by ARK Investment Management LLC, a New York-based firm specializing in disruptive innovation. ARK Investment Management is an award-winning ETF issuer that attracted more than US$2.8-billion in ETF assets under management. Each of Emerge’s ETFs comes in two different classes, Canadian dollar units (shown in the accompanying table – EARK, for example) and U.S. dollar units (EARK.U).

Another provider joined the market in July. Picton Mahoney Asset Management,a Toronto-based hedge fund manager, introduced exchange-traded class of units for its entire Fortified Alternative Fund family. The suite comprises alternative funds that invest in long and short positions in equities, derivatives, securities of investment funds, fixed income securities and/or cash and cash equivalents. In addition to management fees of 0.95 per cent, each Fortified ETF also charges outperformance fees tied to certain benchmarks.

Increased competition and the expanding product range make it difficult for small issuers to survive. For example, Coin Capital Investment Management Inc.announced that it will be terminating the Coincapital STOXX B.R.AI.N. Index Fund (THNK) and the Coincapital STOXX Blockchain Patents Innovation Index Fund (LDGR), thereby exiting the ETF industry, effective on or about Aug. 29.

First Block Capital Inc. is exiting the market by closing its only ETF, the FBC Distributed Ledger Technology Adopters ETF (FBCN), effective on or about Sept. 17. The blockchain ETF was up against similar ETFs from Horizons ETFs, First Trust Portfolios Canada and Harvest Portfolios Group.

Among the well-established fund providers,BMO Asset Management Inc. announced the termination of three ETFs: the BMO Global Banks Hedged to CAD Index ETF (BANK), the BMO Global Insurance Hedged to CAD Index ETF (INSR) and the BMO Shiller Select US Index ETF (ZEUS), effective on or about Nov. 1. Each of these ETFs has not attracted significant assets – less than $20-million in assets under management since their inception back in 2017.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian ETFs: Smaller providers continue to get pushed out of the market

In this research report created this week for The Globe And Mail, we look at Canadian ETFs: June’s launches and terminations.

A new ETF issuer joined the industry during May with a suite of alternative ETFs.

The Canadian ETF industry ended the second quarter with assets under management (AUM) at $181-billion. Despite the booming industry, smaller providers of exchange-traded funds are being forced out of the market owing to increased competition.

The latest example is Galileo Global Equity Advisors Inc., which announced Monday that it will be exiting the industry with the closing – on or about Sept. 9 – of its only ETF, the U.S. Global Go Gold and Precious Metal Miners ETF (GOGO-TSX). “Although the fund has outperformed its peers since its inception [Sept. 29, 2017], the costs associated with maintaining this product in the Canadian marketplace are simply too prohibitive,” Frank Holmes, director of Galileo Global Equity Advisors, said in a news release.

As for notable recent additions, Evolve Funds Group Inc. launched two themed ETFs in June. The Evolve Global Materials & Mining Enhanced Yield Index ETF (BASE-TSX) seeks to replicate the performance of the Solactive Materials & Mining Index, while mitigating downside risk. The ETF invests directly or indirectly in companies engaged in the manufacturing, mining and/or integration of metals and materials, while writing covered call options on up to 33 per cent of the portfolio securities. It is also offered in unhedged units under the ticker BASE.B.

Evolve also introduced Canada’s first e-gaming ETF last month. The Evolve E-Gaming Index ETF (HERO-TSX) seeks to replicate the performance of the Solactive Electronic Gaming Index, designed to provide investors with access to companies listed domestically and globally that have business activities in the electronic gaming industry. The momentum behind e-gaming “signifies a cultural shift in entertainment with 2.2 billion gamers globally. … This year, the industry is forecast for growth upwards of 38 per cent,” Raj Lala, president and CEO of Evolve Funds Group Inc., said in a June news release.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Executive Summary

The New Executive Summary Explained

StockPointer subscribers have access to a revamped Executive Summary that provides more analytics to simplify interpretation.

In addition to the upgraded user-interface, three new features have been added:

  • Upgraded Intrinsic Value display
  • New performance indicators
  • New data points

Download User Guide

Quote Box

Quote box summarize daily information on the company. It contains essential information on the company including dates, currencies, company location.

Sector and Industry Identifies the sector and industry that the company is part of.
The Report title indicates the quarter and fiscal year of the report. It also displays the date that the data was generated. Usually the date generated is the previous day. Beside the line, you might see a warning icon, that will appear when the next financial statement is expected soon or it’s late.
The field displays the fiscal year-end of the company and the most recent financial statement as well as when the financial statement was available.
The field currency informs the currency of the report as well as if the data is in millions or thousands.

Intrinsic Value

StockPointer® evaluates the intrinsic value of a company by adding the current value of the company and estimating the present value of Economic Profit generated by the company over time.

The StockPointer® intrinsic value (IV) is the value of the company based on the Economic Profit (EVA) contribution of the company and the estimated future EVA. It is estimated by obtaining the present value of the sum of discounted future EVA and adding the current value. If the IV is negative, we default the value to $0.
The value of upside and downside from the previous closing stock price of the company. The formula is (intrinsicValue / stockPrice – 1) * 100. The intrinsic value is not always correlated to the stock price for various reasons, however look for trends on the chart below.
The intrinsic Value gauge displays: the most recent IV, and the highest and lowest IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
The Price to Intrinsic Value gauge displays: last quarter’s P/IV and current P/IV, and the highest and lowest P/IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
The Price to Intrinsic Value Adjusted gauge displays: last quarter’s P/IV adjusted and current P/IV adjusted, and the highest and lowest adjusted P/IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
Average intrinsic vlaue over that past 3 years.

KPI’s

This sections offers 4 key performance indicators and provides insight for interpreting the performance of a company.

Reputation (Market Value Added)

This key performance indicator is used to gauge the capacity of management to increase the value of the company. The market value added (MVA) is calculated by deducting the invested capital to the total market value. This KPI calculates the percentage of MVA of the market capitalization. The higher the percentage, the higher the reputation. On the other hand, a negative MVA means that the company has an unattractive reputation.

Effective management will grow the MVA and bad management will destroy the MVA.

The reputation returns stars based on the most recent % of MVA on market cap.
The Direction showcases the general trend of the reputation over the past two years. Effective management will improve the MVA.
The Trend indicates the short-term trend of the reputation in the last 12 months. This short term metric may signal a possible future change in reputation.
The value in the circle represents the percentage of FGV on market cap. and the shaded region of the circle represents the percentile ranking of the company.
The chart displays the % of FGV to market cap over the last 5 years
The table displays the current operating value growth over 1 year and 3 years. This is the growth of the actual profits the company is generating.

Percentage Future Growth Value On Market Capital

This key performance indicator is important to evaluate if the stock price is fairly valued. The future growth value (FGV) is calculated by deducting the current operating value of the company from the total market value. In addition, the FGV is the net present value of all future EVA.

This is a complex KPI. Firstly, you must look at whether or not the FGV is in line with the company’s current situation. For example, we expect a high FGV for growth stocks and almost no FGV for a slow or no growth company. Companies can sometimes trade at a discount or at a premium. For example, a growth stock with a declining FGV growth but rising EVA growth signals a bullish forecast.

Economic Performance Index

The economic performance index (EPI) is the main indicator to identify how much wealth is redistributed to the shareholders. The higher the better, and a negative EPI means that the company is not covering its costs of capital.

The value in the circle represents the EPI. and the shaded region of the circle represents the percentile ranking of the company.
The chart displays the performance spread over the last 5 years. The spread is the difference between Return on Capital (ROC) and Cost of Capital (COC), whereas, the EPI is the ratio of ROC to COC.
The table displays the EPI change over 1 year and 3 years.
The symbol indicates if EVA and NOP are converging (>), diverging (<) or parallel (=); and the color refers to if the EVA trend is better than NOP or not (for example if the EVA is negative but rising, it will display a green pill to signal improving performance. EVA and NOP will be parallel if the difference is within 2.5%.
Displays the overall trend by focusing on the percentage difference between EVA and NOP over the last 3 years.
EVA – Here you will find the most recent EVA (in millions $) and the 3-year EVA change to get an idea of the overall trend of the company’s performance.
NOP – Here you will find the most recent NOP (in millions $) and the 3-year NOP change to get an idea of the overall trend in company profits.

EVA Versus Net Operating Profit

This KPI is very useful for understanding the correlation between economic value added (EVA) and net operating profit (NOP). If both the NOP and EVA have the same slope they will be given a parellel and green signal. If both the NOP and EVA are sloping up but the NOP is flatter, it will have a converging and green signal. If both the NOP and EVA are sloping up but the EVA is flatter, it will have a diverging and red signal.

Detailed Information

This section presents information in four sub-sections.

  • Intrinsic Value
  • Market Performance
  • Economic Performance
  • Accounting Performance

You can view the sections as separate tabs or as a complete list by changing the display on the right.

This tab shows the performance and valuation metrics.

Here you have the performance and valuation calculations for the past 5 years, based on either a trailing 4 quarters (TTM) or trailing 12 quarters (T36M).
There are 2 separate hyperlinks that lead you to the detailed calculations for both NOPAT and Capital. Note: the data in those hyperlinks are on an annual basis and not a quarterly basis as that appearing throughout the Executive Summary.
To change the display from a shorter term to a longer term view. Select between last 4 quarters or last 12 quarters based on your preferences.
Stock price versus intrinsic value trend lines.

The Market Performance tab displays TTM and quarterly MVA and FGV information for the last 5 years.

The chart displays quarterly or TTM data
The chart displays quarterly of TTM data

The Market Performance tab displays TTM and quarterly NOPAT and EVA information for the last 5 years.

The chart displays quarterly or TTM data

The Market Performance tab displays TTM and quarterly accounting information for the last 5 years.

The chart displays quarterly or TTM data

New market player offers zero management fee ETFs

In this research report created this week for The Globe And Mail, we look at Canadian ETFs: May’s launches and terminations.

A new ETF issuer joined the industry during May with a suite of alternative ETFs.

Accelerate Financial Technologies’ mission is to “democratize alternative investments by offering institutional-caliber hedge fund and private equity strategies in low-cost, liquid and easy to use ETFs accessible by any investor.” Instead of charging a management fee, each ETF has a performance fee over their high-water mark or its respective benchmark.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst for Inovestor Inc. 

Portfolio Manager’s June comment For May Results

The S&P/TSX Total Return Index contracted by 3.1% in May that is less then both the S&P 500 (-6.35%) and the MSCI ACWI ex. USA (-5.26%). At May end, after a first declining month, the YTD S&P/TSX Total Return Index was up 13.4%.

Markets have been on a roller coaster as the probability of tariff wars are rising. On top of tariffs, US investors were increasingly concerned in regards to potential regulation of the American mega cap technology companies due to the monopolistic nature of their business models.

The best TSX sector in May was Information Technology, up 4.3%, as the largest players such as CSU OTEX, GIB.A and SHOP,) all posted good quarterly results. On the other hand, the worst sector was Health Care, down 13.8%, a sector in which INOC is not invested.

Looking more specifically at INOC, defensive stocks such as ATD and DOL outperformed nicely as investors were looking for a safe heaven away from the surrounding chaos. INOC’s best performer in May was CCL.B following better than expected results. The three weakest performers for the month were Norbord, Magna, and Linamar, their poor performance was driven by macro economics and politics but also in the case of Magna by management downward revision of this year financial results guidance.

Canadian ETF Industry Report: April 2019

The Canadian ETF Industry reached a new record high of $178.7-billion in assets under management at the end of April. Three new ETFs were added to the product line during the month.

APRIL ETF LAUNCHES:

With the reintroduction of the STATES Act in the United States, which would protect states’ rights to determine their own policies on marijuana and limit cannabis prohibition at the federal level, cannabis investing is at another turning point. Two ETF providers want to exploit this untapped market by introducing U.S. Marijuana ETFs.

Evolve ETFs launched the Evolve U.S. Marijuana ETF (“USMJ”). USMJ seeks to provide long-term capital appreciation by actively investing in a diversified mix of equity securities of issuers that are involved in the U.S. marijuana industry where state and local laws regulate and permit such activities. Evolve ETFs’ other marijuana-focused fund, the Evolve Marijuana Fund (“SEED”), was Canada’s Top Performing Equity ETF listed on the TSX over the past year with one year total return of 71.37%1 as of April 30, 2019.

After launching the world’s first marijuana ETF, which attracted over $920-million in assets under management, Horizons ETFs added to the suite of Cannabis-focused ETFs with the introduction of the Horizons U.S. Marijuana Index ETF (“HMUS”). HMUS seeks to replicate, to the extent possible, the performance of the U.S. Marijuana Companies Index. The underlying index is designed to provide exposure to the performance of a basket of North American publicly-listed life sciences companies having significant business activities in, or significant exposure to, the United States marijuana or hemp industries. The ETF is also available in U.S. dollar under the ticker HMUS.U.

Both the Evolve U.S. Marijuana ETF and the Horizons U.S. Marijuana Index ETF trade on Aequitas NEO Exchange.