Kim Shannon

Disciplined value veteran sees stock prices as a reflection of human nature.

Jade Hemeon 30 April, 2004 | 1:00PM
Despite more than 20 years in the investment business, Kim Shannon, president of Sionna Investment Managers Inc., says it's difficult to remain logical, rational and unemotional when trading stocks. She relies on certain disciplines and tools to help her remain impartial, including a structured set of 20 probing questions that give her a "360-degree view" of companies, and a policy of buying and selling gradually.

"When it's an all-or-nothing decision to buy or sell, you're likely to wait too long and do nothing," says Shannon, lead manager ofCI Canadian Investment,CI Canadian Equity andSynergy Canadian Value Class. "If the stock suddenly moves, you want to kick yourself around the room. We use incremental trading to help us avoid those emotions."

With $2.9 billion under management, Shannon also weighs in on the Canadian value portion of a long list of funds run by CI Fund Management Inc. and its subsidiaries. Her portfolios hold a similar list of names, though there may be tiny variations in weightings. Because most stocks trade in ranges that fall between 70% and 130% of their intrinsic values, she makes her move to buy at the low end and sells at the high end.

"Stock prices are as much a reflection of human nature as underlying value, and I like to sell early and buy early," she says. "With riskier stocks, we'll sell as soon as they hit intrinsic value. With less risky stocks, we'll hang on a little longer."

Shannon starts her analysis with a quantitative process whereby she evaluates a company on the basis of price to book value, sales, earnings and cash flow. She also takes a hard look at dividends, which she believes are the most important component of returns in the long term. The average dividend yield of her portfolios is about 50% higher than that of the S&P/TSX Composite Index.

She concentrates on large capitalization stocks, and her universe consists of about 140 names. Her portfolios typically hold 40 to 60 stocks, and she's not afraid to indulge in her favourites. She currently holds more than 6% of fund assets in both the Royal Bank of Canada ( RY/TSX) and Bank of Nova Scotia ( BNS/TSX), and financial services overall account for about one-third of her portfolios. In 2003, her turnover rate was a scant 8%, although it's typically in the mid-teens.

Shannon's entry into investment management was something of a surprise even to her. Originally she graduated with a bachelor of science in zoology and anthropology from the University of Toronto in 1980.

She had spent a lot of time at university launching student organizations and co-ordinating events, and had an "epiphany" when a friend suggested her skills would be useful in business. "My degree was going to get me a $16,000 a year job analyzing animal bones in archaeological sites. That wasn't going to add up. So I revised my life plan."

After taking some courses and working at short-term jobs, in 1983 she landed her first job in the investment business at United Canada Insurance Co., where she worked as an analyst. She studied hard at the same time, "graduating with distinction" with a BA in finance and economics from U of T in 1986.

She then joined Royal and Sun Alliance Insurance Group as an analyst and trader, obtaining an MBA in 1993 from U of T. She moved to AMI Partners Inc. in 1995, and in 1996 became sub-advisor to the then-ailing Spectrum Canadian Investment, which she quickly turned around.

When Shannon left AMI in 1999 to join Merrill Lynch Investment Managers Inc., the fund management contract followed her. When Canadian Imperial Bank of Commerce bought Merrill in early 2002, she worked briefly for the bank's investment management arm, keeping control of the fund.

When CI took over Spectrum Investment Management Ltd. later in 2002, CI asked Shannon to stay on. She took advantage of the opportunity to launch her own firm. Sionna is the Gaelic version of Shannon's last name.

CI Canadian Investment shows an average annual return of 11.4% for the five years ended March 31, well above the 7.5% for the median Canadian equity mutual fund. During the bull market of the most recent 12 months, the fund's gain of 31.3% slightly lagged the median return of 32.1%.

"We tend to underperform in hot, frothy, speculative markets, but once we get returns we usually hang on to them," says Shannon. Because the average investor tends to buy when markets are hot, we make it easy to stay invested by protecting assets in down markets."

About Author

Jade Hemeon

Jade Hemeon