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ETF Focus: A new ETF is making a bet that a company’s most prized asset isn’t in its balance sheet

June 12, 2017
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Before deciding whether they will put their money into a stock, investors can scour the company’s financial statements, looking at its various measures of valuation and its past performance.

But what if one of the most valuable parts of the company was intangible, something that wouldn’t get a line on quarterly balance sheets?

That is the investment premise behind a strategy that emphasizes the value of a company’s brand in calculating its future prospects. Brand, according to the research firm Brandometry, “is a collection of perceptions about a company, its assets, its people, and its conduct.”

While everyone can name brands that are widely respected, assigning a specific dollar amount to the value of the brand is complex. Quantifying brand “consists of a great many difficult-to-measure assets,” according to Tony Wenzel, Brandometry’s president, listing nearly a dozen factors that go into establishing the value of a brand. Those include such issues as intellectual property, proprietary processes, and “exclusive access,” among others.

Google












GOOGL, -0.86%










Apple












AAPL, -2.39%










Netflix












NFLX, -4.17%










McDonald’s












MCD, -1.99%










Facebook












FB, -0.78%










and Lockheed Martin












LMT, -0.04%










 were all listed as companies that have strong “intangible brand components”

Having a strong brand can translate to a company’s bottom line by generating a “reputational ‘halo’ that confers a level of stakeholder loyalty,” Wenzel wrote in a blog post. He also argued that companies with strong brands also tended to have strong economic “moats,” or distinct competitive advantages.

Assigning concrete values to such indistinct factors might seem risky, but so-called intangible assets are a major part of the economy. According to a 2011 report by Robert Shapiro, President Bill Clinton’s undersecretary of commerce for economic affairs, the economy holds more than $14.5 trillion in intangible assets.

Phil Bak, the chief executive officer of Exponential ETFs, called intangible assets “the next frontier in stock valuation.”

Exponential is launching an exchange-traded fund dedicated to the brand strategy that will debut on Tuesday. The Brand Value ETF












BVAL, +0.00%










 is “designed to outperform the broader market by identifying companies with strong brands whose latent value hasn’t yet been realized by their stock price,” according to a news release. The fund will hold 50 companies that are primarily large cap.

Historically, according to Brandometry, the index that the ETF will track—the BrandTransact 50 index—has outperformed common growth and value-based strategies, as well as a traditional market-cap weighted index.

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