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What are we looking for?

According to the World Bank, Canadians have more than 50 per cent of their portfolios in domestic equities – despite Canada only accounting for 1.4 per cent of the world’s GDP in 2020. Home bias, defined as the tendency for investors to gravitate toward domestic equities, continues to deprive portfolios of the benefits of diversification. While home bias is unlikely to be overcome en masse, prudent investors who want to remain invested in Canadian companies can work around this by identifying those that derive the majority of their revenue outside of North America.

The screen

To begin our analysis, we used FactSet’s Universal Screening tool to pull all publicly traded securities on the Toronto Stock Exchange.

Next, we narrowed down our screen to only include profitable companies that reported a positive net income in their last annual report. Additionally, average estimates by sell-side analysts must indicate growth this year in sales and earnings.

Looking toward geographical diversification, the companies must derive less than 50 per cent of their total revenues from North America. We included North America as opposed to Canada, owing to Canadian companies generally having high business and revenue overlap with the United States especially; we are looking for more distinct geographical exposure. All revenue exposures are calculated by FactSet’s proprietary algorithm, using financial statements as a baseline.

This left us with 16 remaining companies (top 10 displayed), which we ranked based on their North American revenue – with the lowest revenue exposure to this continent ranking highest on the list.

More about FactSet

FactSet is a leading global financial data and technology company. FactSet’s superior suite of content, analytics and workflow solutions covers the entire portfolio life cycle and offers actionable insights for asset managers and investment professionals around the world.

What we found

How investors can combat home bias, without leaving home

RankCompanyTickerFactSet IndustryMkt. Cap. ($ Mil.)North America Rev. (%)Latin America Rev. (%)Asia/Pac. Rev. (%)Europe Rev. (%)Africa/Mideast Rev. (%)2020 Sales ($ Mil.)2021 Est. Sales ($ Mil.)2020 Net. Inc. ($ Mil.)2021 Est. Net Inc. ($ Mil.)Net Debt ($ Mil.) **2020 ann. P/EDiv. Yld. (%)YTD Ttl. Rtn. (%)Recent Close ($)
1Aura Minerals Inc.ORA-TMining & Mineral Prod.1,037.60.799.
2Triple Flag Prec. Metals*TFPM-TSpecialty Fin. & Serv.1,972.77.935.547.00.09.5151.0212.674.584.7-32.6n/a1.5n/a12.63
3Geodrill Ltd.GEO-TIndustrial Services95.
4Ero Copper Corp.ERO-TMining & Mineral Prod.2,
5Wheaton Prec. MetalsWPM-TMining & Mineral Prod.25,305.714.678.,470.41,693.0681.1868.3-287.535.01.26.856.20
6Sandstorm Gold Ltd.SSL-TMining & Mineral Prod.1,592.318.655.04.32.919.1124.8153.418.543.8-53.492.3n/a-10.48.17
7Lundin Mining Corp.LUN-TMining & Mineral Prod.7,017.419.,730.74,032.5226.41,011.4-189.936.63.8-13.49.53
8Pan American SilverPAAS-TMining & Mineral Prod.6,878.919.680.,795.82,179.8238.6308.2-238.638.71.5-24.932.71
9Equinox Gold Corp.EQX-TMining & Mineral Prod.2,755.129.970.,130.11,353.927.8580.9105.4100.7n/a-30.49.17
10Yamana Gold Inc.YRI-TMining & Mineral Prod.5,141.430.,093.82,338.1273.1375.4362.725.32.8-25.95.32

Source: FactSet

* Triple Flag began trading in May, 2021, hence does not have a relevant 2020 P/E ratio or YTD price return. ** A negative net debt indicates that the company holds more cash than total debt.

Eight of our top 10 companies were classified as mining and mineral product companies, according to FactSet. Notably, 63.3 per cent of their revenues were derived from Latin America, on average. This makes sense as Latin America is known for some of the world’s best mineral reserves, while Canadian companies are known for their presence in the global resources space.

Triple Flag Precious Metals Corp., a precious metals streaming and royalty company, came in at No. 2 on the list with only a 7.9-per-cent revenue exposure to North America. It derives 47 per cent of its revenues from the Asia and Pacific Region, which can add some diversification to the companies dominant in Latin America that passed our screen. Triple Flag is a finance company that provides capital to metals and mining producers in exchange for a royalty – as opposed to directly absorbing the risks associated with exploring and developing a mine.

Geodrill Ltd., a drilling service provider, was the only industrial company to pass our screen. It ranked third with a 9.1-per-cent exposure to North America and the bulk of its revenue coming from Europe, at 35.6 per cent. Despite being in the industrial category, it provides services to the metals and mining space and hence provides an alternative for investors seeking exposure to the mining industry.

All the companies on our list have some exposure to metals and mining; the rise in commodity prices over the past two years could explain the expected surge in sales and profits for 2021. While these opportunities provide geographical diversity, they are all exposed in varying degrees to shared risks in the mining space – such as fluctuating commodity prices.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

Full disclosure: The author personally owns shares in Equinox Gold and Geodrill Ltd.

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.

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