This week, I had the honor of participating in the closing bell ceremony at the New York Stock Exchange.
Brandometry was celebrating the 1-year anniversary of the Brand Value ETF (BVAL), offered by Exponential ETFs. Brandometry has developed an innovative index of companies believed to have undervalued brands:
“Our mission is to help investors know when to hold strong brands. We seek well-known brands with unrealized value. The name, Brandometry™, reflects the importance of corporate brand in the financial markets and how brand can help shape an investment strategy.”
The basic idea is that a company’s brand reflects everything we think we know about that company – from how we view management to our product and customer experiences to what we see on social media. Think about companies you love (maybe Apple or Amazon) and compare to companies with recent perception challenges (perhaps Starbucks and Chipotle). In today’s world, brand perception is everything.
The challenge for investors is that a brand is extremely difficult to quantify. Brands are intangible. As we have transitioned from a capital-intensive, manufacturing-based economy to a more service-based economy, intangible assets are becoming a larger percentage of a company’s value – perhaps not fully accounted for on the balance sheet.
10/ companies like Interbrand try to estimate the dollar value of each company’s brand and the gaps between the market value and the book value is often measured in the billions of dollars pic.twitter.com/fAJazABwGm
— Patrick OShaughnessy (@patrick_oshag) April 20, 2018
(By the way, for a deeper dive into this topic, I highly recommend reading this from O’Shaughnessy Asset Management).
Enter Brandometry, who seeks to quantify these intangible assets by collaborating with Tenet Partners. Tenet compiles brand power scores by surveying corporate executives and director-level individuals either doing business with the brands or having the capability of doing business with the brands. Companies showing significant positive changes in brand power scores, but without an associated uptick in stock price, are screened as potentially undervalued. The top 50 companies are selected and equal-weighted.
There’s been debate recently over whether traditional company valuation metrics (price-to-book, for example) are outdated because they don’t fully capture the value of intangible assets such as brands. Time will tell whether Brandometry has built a better mousetrap, but the thing that always strikes me about ETFs like BVAL is the sheer innovation. I had the opportunity to visit with Brandometry CEO Larry Medin, President Tony Wenzel, and the Exponential ETFs team led by Phil Bak.
Brandometry CEO Larry Medin
Brandometry and Exponential ETFs are the perfect embodiment of the talent, grit, and entrepreneurialism that permeates the ETF industry. It takes guts to launch a new ETF in a space that wasn’t previously occupied. The world of ETFs is a dangerous jungle, where upstarts like Exponential ETFs must bring clever, innovative ideas to compete with the iShares and Vanguards of the world. That’s why ringing the bell at the New York Stock Exchange is so special. It represents a celebration of this entrepreneurship, which continues to power the ETF industry forward.