The top 10 companies for CEO Effectiveness, according to MarketMeter

Very few if any professional investors worth their salt allocate capital based on a single metric or quality of a company. Sure, a company may have one standout trait, but weak spots don't stay hidden for long.   

But that doesn't mean they prioritise these things evenly. They certainly give more weight to some over others. 

I speak to a lot of fund managers on The Rules of Investing, and one of the most important things they look for in a company is an effective CEO and management team. It doesn't take a lot to see why. CEOs and their supporting cast of managers are steering the ship, making the big calls day to day that directly shape the fortunes of their companies. 

MarketMeter has been kind enough to share its research on the top-scored ASX-listed companies by institutional investors. 

So in this wire, I explain how MarketMeter collects its research, list the top 10 ASX companies across the ASX100 and ASX101-200 categories, before finishing with some reactions from Andrew Mitchell, Director and Senior Portfolio Manager at Ophir Asset Management.  

Spoiler: Macquarie ranked top of the pops for CEO Effectiveness. Shemara Wikramanayake was this year named The Australian Financial Review Business Person of the Year, so you can have confidence that the research from MarketMeter is on the money. 

What is MarketMeter?

MarketMeter is an interactive market insights platform that measures and benchmarks institutional investor perceptions of Australian listed companies, who find it a reliable risk management tool to understand their performance in the eyes of institutional investors.

“With the benefit of super fund data partnerships, MarketMeter has a deep, high-quality data pool which can help fund managers understand how their stock perceptions differ from their peers, category by category, and by how much,” says Nicholas Coles, Managing Director and co-founder at MarketMeter.

The platform enables institutions to score companies from 1-10 on a range of factors. Participants are then able to see how their views compare to those of other professional investors. Companies are evaluated across 27 factors grouped in categories of financials, ESG, management, strategy and engagement.

Note: This piece is the last in our six-part series, looking at and evaluating MarketMeter’s exclusive data. You can view the previous pieces below:

Investment Theme

The top 10 companies for Sustainability Reporting, according to MarketMeter

View

Equities

The top 10 ASX 100 companies in terms of earnings quality, according to MarketMeter

View

Investment Theme

The top 10 companies for Investment Desirability, according to MarketMeter

View

Equities

The top 10 ASX 100 companies in terms of Growth Prospects, according to MarketMeter

View

What makes a CEO "effective"?

This definition comes from MarketMeter: Appraises the key areas of a CEO’s performance; primarily earnings quality, growth prospects, clarity and strength of strategy, and shareholder value focus. Succession planning and credibility are also key issues when evaluating a CEO. Consideration also given to appropriateness of the structure of the CEO’s remuneration package and performance hurdles, and whether it’s aligned with long-term growth objectives.

Top 10 ASX 100 companies in terms of CEO Effectiveness

These are the ASX 100 companies that fund managers scored highest with regard to CEO Effectiveness. The list appears in order based on the results of the most recent MarketMeter research.

1. Macquarie Group (ASX: MQG) 
2. Goodman Group (ASX: GMG) 
3. CSL Limited (ASX: CSL) 
4. REA Group (ASX: REA) 
5. Aristocrat Leisure Limited (ASX: ALL)
6. Amcor PLC (ASX: AMC) 
7. Oz Minerals PLC (ASX: OZL) 
8. BHP Group (ASX: BHP)
9. Qantas Airways Limited (ASX: QAN)
10. Computershare Limited (ASX: CPU)

Top 10 ASX 101-200 companies in terms of CEO Effectiveness

These are the ASX 101-200 companies that fund managers scored highest with regard to CEO Effectiveness. The list appears in order based on the results of the most recent MarketMeter research.

1.  Graincorp Limited (ASX: GNC)
2. Lovisa Holdings Limited (ASX: LOV)  
3. Chorus Limited (ASX: CNU) 
4. Arena REIT (ASX: ARF) 
5. Domain Holdings Australia Limited (ASX: DHG) 
6. Corporate Travel Management Limited (ASX: CTD) 
7. Breville Group Limited (ASX: BRG) 
8. Flight Centre Travel Management Limited (ASX: FLT) 
9. Pro Medicus Limited (ASX: PME)
10. AUB Group Limited (ASX: AUB)

Mitchell's take

LW: What did you think of the list?

Mitchell: There are definitely some great leaders amongst that group. But the group also has a high correlation with the quality of earnings. Some other metrics we think would be highly correlated with effective CEO’s is earnings growth, return on capital employed and total shareholder returns. Also at this point in the cycle you want someone who has navigated tougher economic times and a rising interest rate environment. Making the hard decisions early (cutting costs, securing funding, locking in customer contracts) going into an economic slowdown if needed is going to put you into a better position than waiting until things get tougher.

The best CEOs will be looking at who their weaker competitors are that they can take share from or potentially buy in a downturn.

Mitchell: There are lots to add! We’d throw in here Mineral Resources (ASX: MIN), EBOS (ASX: EBO), just to name two.

LW: How does CEO effectiveness (and management teams more generally) factor into your investment process? 

Mitchell: It’s absolutely critical for businesses more generally and even more so in small caps that we specialise in as they tend to be allocators of capital in more discrete businesses. This is heightened again for resource companies that are so project based and reliant on picking quality assets to extract the resource from. Quality of management, including CEO effectiveness forms part of the seven core “Balanced” score elements we assess for every company.

Never miss an insight

If you're not an existing Livewire subscriber you can sign up to get free access to investment ideas and strategies from Australia's leading investors.

I'll be in charge of asking the questions to Australia's best strategists, economists, and fixed-income fund managers. If you have questions of your own, flick us an email: content@livewiremarkets.com