There are many ways to measure the value of corporations. Recently, I ventured upon a new approach to value measurement that I think has the power to increase Marketing’s importance both in organizations and in financial markets. The application of a brand-centric approach to value, in the Exchange Traded Fund (ETF) arena, offers a whole new level of visibility for marketing professionals.
An ETF is a basket of stocks or bonds that are traded under a single ticker symbol. ETFs trade like single stocks, but track indexes like the Dow Jones Industrial Average, the S&P 500, and the Russell 1000.
A new firm, Brandometry, has created an investment index based on Brand Value. It’s the first index of its kind, relying on proprietary, qualitative, and quantitative measures of brand strength to determine which companies the index tracks, and which stocks are included in its Brand Value ETF (NYSE:BVAL).
This is significant for marketers. When brand strength starts impacting financial measures, there is a potential to increase the understanding of the value of Marketing on firm performance. In this case, the index determines which stocks to purchase (or not) based specifically on the power of brand.
Below is insight from Tony Wenzel, the President and Managing Director of Brandometry, on this new approach to measuring brands and communicating that value to investors.
Kimberly Whitler: Before we get started, can you explain a little about the context of Brandometry? What are ETFs and how are they different from mutual funds? Why does this matter from a Brandometry perspective?
Wenzel: In the next ten years, ETFs will become the primary method investors use to participate in the market. Assets under management in the ETF space have grown at over 19.4% over the past 10 years. There are over 2000 ETFs in the United States that manage nearly $3 trillion in wealth. Inflows to ETFs were $68 billion in January alone. By comparison, US Mutual funds manage over $13 trillion in wealth, but are experiencing momentous investment outflows.
ETFs are a significantly better investment vehicle than mutual funds, because they are much less expensive, completely transparent about holdings, more liquid, and tax efficient. These benefits have precipitated a massive shift of wealth to ETFs. Their popularity generally, and specifically with millennials, makes our space very attractive. In the case of Brandometry, using exclusive qualitative information, in addition to traditional quantitative data, gives our ETF valuable advantage.
Whitler: Brandometry introduced a novel type of index. Can you explain what it is and why is it unique?
Wenzel: In ETFs, the index sets the rules that guide the investment strategy. Brandometry builds Brand-centric fund indexes. Brand is a perceptual idea. We define Brand as a collection of an entity’s assets, both tangible and intangible, people, both management and talent, and conduct both intended and unintended. Intangible assets are a large component of brand value. Experts say that between $8 and $14 trillion of the US economy resides in intangible assets. Unfortunately for investors, you can’t measure intangible assets in typical financial statements.
The index behind our Brand Value ETF employs exclusive data from CoreBrands, publishers of the BrandPower Index, to determine which Brands are undervalued by the market. We define Strong Brands as US domestic equities that are both familiar and favorable.
The familiarity filter covers brand awareness and refers to the best known of all BrandPower-scored companies. The favorability filter covers the strength of each Brand’s reputation, management team, and investment potential. Survey respondents are director-level and higher executives who commonly do business with these Brands.
The 50 Brands with the best spread between strong brand value and soft market value are included in the index and are equally weighted in the ETF.
Whitler: Does this index have the potential to change how investors, CFOs, and bankers think about Marketing? Why?
Wenzel: Yes, we think the index will change what leaders think about Marketing and Brand. The financial markets are overrun with quants scrutinizing rear view mirror financial “factors”. We’re going a completely different direction. We look at leading perceptual indicators. Much of the data we employ has existed for 25 years and is familiar to CMOs. However, until now, this information was ignored in the financial markets.
CMOs will tell you that Brand has been measurable for a long time. Yet, while there are standards organizations like the ISO and the Marketing Accountability Standards Board, true agreement on measuring brand across industries has yet to win over the c-suite, bankers, or investors.
We have three advantages to help change the way corporate value is measured:
First, our index demonstrates improvements in quantifying fundamentals and performance using Brand as a measure of value. We focus on value as a strategy in this index. Our price-to-book, price-to-sales, and active share exposure provide opportunity for excess returns with risk level very similar to the S&P500.
Second, investor confidence is assured, because the index tracks only strong brands that everyone knows and all are US domestic equities. Those stocks represent the largest component of investor portfolios.
Third, investors intuit that Brand is a company’s most-valuable asset. They already invest in Brands they believe in, so they are responsive to new data illustrating when to own strong, but undervalued Brands.
Whitler: Why should marketers care about Brandometry’s index? In other words, do you think that this index can impact marketers or marketing in some meaningful way?
Wenzel: Having the financial markets accept the importance of Brand portends great things for Marketing as a discipline. Marketers have understood the importance that Brand holds in companies for decades, but that knowledge has been slow to proliferate and affect senior management. When Brand performance metrics were created, it was uphill going because the economy was in transition away from a manufacturing base. The difference today, as opposed to 20 years ago, is that it’s now clear that we live in an idea-based economy. Uber owns no cars. Airbnb owns no hotels. Apple produces no music. The value of these companies rests almost entirely intangible assets, a.k.a. components of Brand.
Brandometry is committed to changing the way corporate value is measured. As the financial markets begin to understand the legitimacy of Brand as a value measure, so too will management teams. By the same token, as CMOs – whose tenure as a group has doubled in the last five years – begin to take the helm of public companies and seats on Boards of Directors, they’ll bring these ideas to the command center.
Join the Discussion: @KimWhitler @TonyWenzel @Brandometry1 #BrandValueMatters