Weekly Reputation Index Metrics
The RepuStars® Variety Corporate Reputation Index calculated by Dow Jones Indexes launched into widespread distribution on November 1, 2011. Previously calculated on a proprietary basis and available only on the Mission Intangible blog of the Society, it is the first-ever composite equity index based on a quantitative strategy exploiting discrepancies between Steel City Re corporate reputation metrics and share price. The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR. Click here for real time quotes.
AnalysisReputational value is usually embedded in equity value. Exceptions are two-fold and are both event driven. One exception is when stakeholders much closer to the firm, appreciate and value the benefits of the intangible assets that give rise to reputation before equity investors, who tend to rely on backward-looking corporate financial reports. Another exception is when equity investors, acting on macroeconomic events and losing their appetite for risk, are unable to incorporate intangible asset features that typically differentiate one firm from another.
The past few months comprised a time period in which the latter exception dominated. As equity markets rediscover their appetite for risk, companies comprising the recently reconstituted RepuStars Variety Corporate Reputation Index are beginning to realize their previously undiscovered reputational value.
The relative growth of RepuStars these past few weeks can not be attributed only to additional reputational value. The S&P500 stocks, as a group, are under pressure as a result of profit taking after their strong week-on-week showing lately.
This is not to minimize the additional 2.5% equity returns being realized by the constituents of the RepuStars Index. The average annual additional equity value associated with discovery of an enhanced reputation is around 6.5% -- a value that closely mirrors the average 7% loss in value associated with an adverse reputational event.
Side Note: At the close of markets 20 January, the RepuStars Variety Composite Index underwent its annual rebalance and reconstitution. Companies that on the basis of their the Steel City Re Corporate Reputation Index metrics are believed to have the greatest value growth opportunity for the coming year replaced those companies that have already either realized or missed that opportunity. A description of the 2012 portfolio constituents and the rules of the algorithmic RepuStars selection process can be downloaded from the Steel City Re website.
Weekly UpdateAt the close of trading 27-Jan-12, REPUVART and REPUVAR stood at 2669.97 and 2323.18 respectively. Over the past four weeks, the former has changed by 7.09%, while the latter has changed by 7.09%. The benchmark S&P500 Composite Index stood at 1146.55 (31 Dec 2001=1000) and has changed over the past four weeks by 4.67%.
Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 4.66% and 3.33% respectively; the S&P500 Composite Index has changed by 3.13%. Since January 2009, the REPUVART and REPUVAR have changed by 113.37% and 102.29% respectively; the S&P 500 Composite Index has changed by 41.27%. Other interval changes in the magnitude of the indices are shown below.
BackgroundThe RepuStars Variety Corporate Reputation Index is the first index based on a quantitative model for analysts, investors, and company managers to determine the actual impact of reputation on corporate equity prices. The companies selected for the RepuStars Variety Index are chosen algorithmically to capture the disparity between value at which a company is currently trading and its value as calculated by Steel City Re’s reputational metrics.
The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to their metrics as measured by Steel City Re’s proprietary Corporate Reputation Index™, which tracks 5500 companies weekly. In using the RepuStars Index as an investment strategy, investors can take advantage of this price disparity. The principles behind Steel City Re's reputation metrics are discussed in the book, Mission:Intangible (see below).
The RepuStars indices are reconstituted annually in the first week of January. The Indices were last reconstituted 20 Jan 2012. Click here for additional information on the index.
Reputation, Risk and FinanceReputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:
1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the first Friday of every month or read the book, Mission: Intangible. Managing risk and reputation to create enterprise value, available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers.
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.