Relative outperformance is all about the relatives

The long-term performance of publicly traded Canadian family businesses consistently beats that of their widely held peers, finds a recent report by National Bank of Canada (NBC).

The Family Advantage Spring 2022 report, the fourth of a series, compared the market performance of 44 Canadian corporations under family or founder control, as calculated by the NBC Canadian Family Index, relative to the performance of the S&P/TSX.

From June 2005 to June 2021, the NBC index had a cumulative return of 325.1% compared to 221.9% for the S&P/TSX composite (9.4% compared to 7.6% in annualized terms).

The family-owned companies’ superior performance was attributed to long-term values that put the good of the company ahead of income maximization. The report also cited adaptability in the context of globalization.

“Since the ’60s, globalization has been one of the major trends in the business world,” wrote Karl Moore, an associate professor with McGill University’s faculty of management and a contributor to the report.

As globalization evolves, “family firms that play on the global stage have an advantage of the long-term view and a long-term set of relationships, often with other family firms in distant parts of the world” — a real advantage in uncertain times, Moore wrote.

The report highlighted such global leaders as Laval, Que.–based Alimentation Couche-Tard Inc., Toronto-based Canada Goose Holdings Inc. and Montreal-based Lallemand Inc., which develops yeasts and bacteria.

The NBC index also outperformed the S&P/TSX over shorter periods — specifically, over the course of the 2008 financial crisis and during the 2020–2021 Covid-19 market disruptions.

In times of uncertainty, family-controlled companies may inspire confidence, the report noted, especially given that about 70% of companies in the NBC index have had at least two generations of family owners.

Included in the NBC index were Desmarais family–controlled Great-West Lifeco Inc. and IGM Financial Inc., which accounted for about $28 billion and $8 billion, respectively, of the index’s market capitalization. (The Desmarais Family Residuary Trust has a controlling voting share in the two firms’ majority owner Power Corp. of Canada — also in the NBC index.)

Report analysts gave Lifeco a stock rating of “perform” and IGM a stock rating of “outperform.”

Regarding the latter, the report said, “Our favourable bias reflects the combination of strong double-digit adjusted [earnings per share] growth and meaningful valuation re-rate potential.”

Further, within IG Wealth Management, “momentum is driven by a refocused strategy, which has manifested in improved consultant productivity and growth in [high-net-worth] assets and managed solutions,” it said.

Asset management momentum “is driven by strong fund performance in top quartiles, improving advisor perception and product innovation.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.