People like to assert that brands provide some cushion for a company when markets are falling, and help them bounce back faster when the market begins to recover.
The last twelve months provide a wonderful testing ground for this theory in that we have had a period of rapid market decline (Sept/Oct last year) and a period of rapid recovery (March/April this year). Interestingly, the percentage changes were almost identical – in the first period the S&P 500 fell by 35% vs. a rise of 37% in the second.
My question is “How did a portfolio of strong brands perform relative to the market?”
The answer (based on a portfolio of 102 companies measured relative to the S&P 500) is that strongly branded companies enjoyed a brand “bonus” of around 4% during the market crash. In the rising market, they outperformed by less than 1%.
I actually constructed a number of different portfolios to see if a portfolio based on any of the major lists of “the world’s best brands” outperformed the market. I created 9 portfolios in all using the Fortune, Interbrand, Millward Brown and Brand Finance lists, and combinations thereof.
The portfolio that registered the best performance in the down market was one based on the Fortune list of most admired companies (it beat the S&P 500 by 7%). The portfolio that did best in the up market was a blended portfolio comprising companies that appeared on at least 3 of the 4 lists (it beat the S&P 500 by 15%). Across the up and down markets, the blended portfolios performed the best.
Maybe this is another case of “the wisdom of crowds”? Across market cycles, a portfolio based on a synthesis of the Fortune, Interbrand, Millward Brown and Brand Finance lists outperforms portfolios based on any one of them…
