BVAL: Capturing Brand Value In An ETF

Despite the recent hoopla surrounding all of the new ETFs coming to market focusing on various investment factors, the factors themselves have been around for decades. I myself have been a huge fan of the momentum factor since the mid-1980s, and the value factor is probably centuries old. Most of these new ETFs are not new investment approaches—they are the same old “standard” investment factors combined, sliced, diced, and repackaged as an ETF (with seemingly great backtested results). However, in one small corner of the ETF universe, there is some true innovation taking place—capturing intangible factors such as brand value. Yesterday’s introduction of the Brand Value ETF (BVAL) is just such a product.

When companies issue their quarterly and annual reports, the words, numbers, and insights can go on for pages and pages. The company will value its buildings, equipment, inventories, loans, and a host of other items, but nowhere will you find a line item entry that places a value on the company’s brand. Often the centerpiece of information in merger and acquisition transactions, brand value tends to be a missing ingredient in regular ongoing financial statements.

The primary reason companies do not report on this aspect of corporate value is because of the historically qualitative nature of intangible assets such as brand value and customer satisfaction. The Brand Value ETF (BVAL) solves this dilemma with a rules-based index built from quantifiable data. This new ETF, launched yesterday (June 13, 2017) by Exponential ETFs and Brandometry, seeks to outperform the market by investing in companies with strong brands that are not fully valued by the market.

The Importance of Brand
According to the Federal Reserve Bank, the U.S. economy holds more than $14 trillion in intangible assets, representing the majority of the entire economy. This translates into brand being the most valuable asset for many companies, even if it does not appear on the balance sheet. It also implies that brand is the most overlooked factor in traditional security analysis.