Business valuation and strategy consultancy Brand Finance plc has announced the launch of the Solactive BrandFinance European Leaders Select 30 Index and Solactive BrandFinance European Leaders Low Risk 30 Index in collaboration with Solactive AG, an innovative index provider based in Frankfurt.
The Solactive BrandFinance indices were created in light of the link between brand value and shareholder value. Brand Finance’s share price study conducted in December, 2015 revealed the compelling link between strong brands and stock market performance. In the study, the average return between 2007 and 2015 across the S&P 500 was 49%. However, if Brand Finance’s data was used to create index funds each year, investors could have generated returns of 97%.
Stemming from the connection discovered in the study, Brand Finance has contributed its data on the most valuable European companies with a high brand value to enterprise value (BV/EV) ratio to the creation of the indices. As a result, 30 of the strongest brands are dynamically selected to form each index. The Solactive BrandFinance indices serve as platforms for investors seeking to invest in companies with strong, valuable brands, high dividend yield and low volatility.
Henning Kahre, Head of Research, Solactive AG, said:
We are very pleased to partner up with Brand Finance plc, a world leading independent branded business valuation and strategy consultancy. We understand the critical importance of brand building and how this can benefit corporations. Strong brands generate customer loyalty and this can lead to better performance. Solactive BrandFinance European Leaders Select 30 Index and Solactive BrandFinance European Leaders Low Risk 30 Index give investors the opportunity to be exposed to companies deemed to have a strong brand value according to Brand Finance plc.
Research has shown that brands are associated with pricing premiums, greater customer loyalty and market share. These factors can have an impact on companies’ profitability and therefore, other things being equal, more valuable brands can be expected to generate higher profits. The Solactive BrandFinance European Leaders Select 30 Index and the Solactive BrandFinance European Leaders Low Risk 30 Index seek to capture this performance premium.
The indices’ unique concept also brings to light the importance of acknowledging a company’s intangible assets. Another Brand Finance study, published in February, revealed that intangible assets account for 47% of total global enterprise value, and 52% of total European enterprise value. Without knowing the full value of their brands, companies are at a disadvantage as they will not be aware of the hidden strength that lies there and investors will be equally blind. Disclosure of intangible assets should lead to companies obtaining an additional competitive edge, since the disclosure of both intangible and tangible assets allows for proper strategic management. The brands selected for inclusion within the two indices are a clear indication that properly managed brands can become solid investment opportunities.
David Haigh, CEO, Brand Finance plc, commented:
For over 20 years, Brand Finance plc has been consistently measuring the impact of strong brands on stakeholder attitudes, behaviour and the effect this has on economic performance. In our experience, there is a clear relationship between strong brands and better financial outcomes in terms of higher revenues, and lower costs and volatility. Our collaboration with Solactive allows investors to invest behind the fact that well managed brands present greater potential for higher investment returns.