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PassiveBeat: why is there no brand ETF?

PassiveBeat: why is there no brand ETF?

Trust the quintessential marketer to identify an opportunity in a seemingly saturated industry.

Within his remarks accompanying WPP’s latest trading update, almost as a throwaway observation, the group's CEO Sir Martin Sorrell outlined an intriguing  investment strategy.

‘If we had invested equally over the past 10 years in the top 10 most highly valued brands in our annual top 100 global brands survey published by the Financial Times, we would have outperformed the S&P 500 by over 70% and the MSCI by approximately four times,’ he claimed. ‘Investing in innovation and branding clearly pays off in the short and long term.’

Investing in brands is not exactly innovative. Managers such as Citywire AA-rated Nick Train and AAA-rated Terry Smith have long preached the virtues of backing established and resilient brands. There are also funds from the likes of Morgan Stanley and Pictet that invest explicitly in brands.

Yet there are no funds that do what Sir Martin suggests: invest passively in the world’s top brands.

Lack of branding

There is admittedly the Horizons S&P Global Consumer Brands ETF, but that is only listed in Hong Kong and in any case focuses solely on the titular consumer names. This means none of the FT’s top brands – Google, Apple, Microsoft, AT&T, Facebook, or Visa – are included.

Few other ETFs match the diversity of the top brands list either. A technology ETF, which may seem a decent proxy for most of the aforementioned names, lacks not only the financial services and telecoms exposure but the consumer stalwarts such as McDonald’s and Coca-Cola further down the rankings.

The FT – which produces its chart with research agency Millward Brown, part of the WPP empire – isn’t the only brand ‘index’ either. Interbrand has its own top 100, which has a greater bias to car manufacturers among other differences, plus an assessment of the fastest-growing brands that could be a separate product. This year’s top performers on that metric are Facebook and Amazon.

Who's Sorrell now?

Moreover, there is evident demand for investment strategies focused on brands.

Looking only at the specific brand mandates, there is over $7 billion (£5.5 billion) in Morgan Stanley’s Global Brands strategy alone – it was soft-closed from 2013 to 2015 – and the group launched an income version of it earlier this year too. Strong performance has of course helped, with its management team A-rated by Citywire.

Yet with ongoing charges between 0.94% and 2.7% depending on the share class, there is clearly room for a passive provider to undercut Morgan Stanley, particularly as index constituents will typically be highly liquid mega-caps.

This seems a far more mainstream opportunity for the ETF industry – presuming an index can be licensed exclusively – than the stream of niche products, whether whiskey or restaurants, that have been launched recently.

PassiveBeat brings together Citywire’s coverage of all things to do with ETFs, Smart Beta and passives in general. For feedback, comments and contributions, please tweet and follow us @passivebeat or drop us an email at passivebeat@citywireusa.com. 

 

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