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It’s all in the brand

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2019 is the year that has seen the Brand Value ETF (BVAL) triple its assets, as it enjoys some attention on its new approach to investing.

Larry Medin, founder and CEO of Brandometry, the issuer behind the BVAL ETF, explains that his driver behind starting the product in June 2017 came from a piece written about five years ago on intangibles and how they represent a large part of the market cap of the S&P.

 
Medin believes that the next frontier of investing isn’t just in new technologies, it’s in valuing assets that are off the books, including the largely intangible ‘brand’, that is, by its very nature difficult to measure.
 
In 1975, it was estimated that intangible assets represented just 17 per cent of S&P 500 companies’ market values; today, this relationship has inverted and intangibles now account for 84 per cent of the S&P 500’s market value, according to Ocean Tomo, LLC.
 
Medin estimates the market cap of intangibles in the S&P to be in excess of USD21 trillion.
 
“We started to ask ‘who was tracking intangibles’,” he says, and observed that intangibles and brand value only tended to show up during a merger or acquisition situation.
 
“I thought it might be an investment opportunity to measure the excess valuation that does not show up on the balance sheets,” Medin says.
 
 BVAL uses the EQM Brand Value Index, based on many years of tracking the brand valuations of companies within the S&P, giving them a brand power score.
Medin’s team then created a delta, between the brand power score and the stock price, hunting down companies whose stock price had moved away from its brand power score. These standards were applied to 500 companies, which were filtered down to 120 to 150 and then the final 50, with the biggest deltas in the portfolio.
This year so far BVAL has returned 20.22 per cent (as of 9/18/19 according to MarketWatch).
 
“I think it comes down to our core concept that people understand brands and interact with brands on a daily basis and if they can find well-known companies that are undervalued then it falls into a regression to the mean investment concept as strong management will bring those companies back,” Medin says.
 
Companies that have been in the index over the years since 2009 include Starbucks, Home Depot, Charles Schwab, Microsoft, Del Monte Foods and Wendy’s – a really variety of household names in the US.
 
“This ETF suits anyone who is looking for an exposure to US large cap companies, right in the core of a typical investor’s portfolio or an adviser’s model that they are using to run client assets,” Medin says.
 
The portfolio also scores high on ESG, according to researcher Smart Cube, which found that the portfolio scored higher than the S&P, probably because a good and competent management with a strong brand reputation has good Governance from the ESG.
“I really do think we have done something that has never been done before,” Medin says. “We have used brands to identify well-known companies that are currently undervalued., We are generating returns greater than the S&P, with lower volatility, based on a concentrated portfolio of companies that every investor knows or does business with on a regular basis – it’s the lightening in the bottle.”
 

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