Index evidence shows that companies that look after their IP and other intangibles do best 05 Mar 12
Last week the RepuStars Variety Corporate Reputation Index briefly hit a record high of 2,502.12. This represented growth of over 14% since the beginning of 2012 and of more than 150% since its launch back in 2001. Initially created and calculated by Steel City Re (whose CEO Nir Kossovsky writes on reputation-related issues for IAM), but calculated by Dow Jones Indexes and distributed under the ticker symbol REPUVAR since the beginning of last November, the index tracks company stocks that are potentially under-priced relative to corporate reputations.
The RepuStars index is the first purely algorithmic stock selection strategy linked to reputation. It identifies value opportunities arising from the interplay of six key business processes and the expectations they create among companies’ stakeholders. They are: ethics, innovation, quality, safety, sustainability and security. The way in which boards of directors oversee the management of these processes is the key factor in creating, sustaining and building reputation. And put simply, those companies with good reputations tend to perform better over a longer time period than those without them – something which the RepuStars index seems to show.
You can see a summary of how the index has performed since launch here. What I find most intriguing (and impressive) is that it has delivered positive returns every single year – even when other indexes have not – and that it has consistently and significantly outperformed the S&P 500 for the last 11 years.Also outperforming the S&P 500 has been the OceanTomo 300, an index launched in January 2007 which tracks the performance of companies with what have been assessed by OT to be very strong patent portfolios.
Both RepuStars and the OceanTomo 300 have been running long enough for it to be fair to conclude that the results they produce are not freak or temporary ones, but are instead indicative of something quite solid. And that is that companies which look after their IP and other intangibles are well worth following because they continually demonstrate that they have clearly understood a vital part of their value proposition. Businesses that know what makes them tick are best placed to make consistently good decisions, and can also respond more rapidly and effectively when things go wrong. What more could an investor want?
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