Barbara Gray, CFA – April 3, 2013 – The Customer Value Index 200 (CVI 200) rose by 10.9% in the first quarter of 2013 versus a 10.0% gain for the S&P 500 Index – an outperformance of 90 basis points. Given its orientation to high-growth, consumer-facing companies, as shown in Figure 1, the CVI 200 is heavily-weighted to the Consumer Discretionary, Information Technology, Consumer Staples, and Industrials sectors.

Figure 1: CVI 200 Sector Exposure
Insights_CVI200-Pie-Q1-2013
Source: Bloomberg

As shown in Figure 2, the S&P 500 weighted average return was 10.3%, compared to its actual return of 10.0%, implying that two-thirds of the 90 basis points of outperformance of the CVI 200 was driven by individual stock selection.

Figure 2: S&P 500 Return for 1Q13 (Weighted as per CVI 200)
Insights_CVI200-SP500-Return-Q1-2013
Source: Bloomberg

Delving deeper into how the CVI 200 performed on a relative sector basis to the S&P 500, we discover the outperformance was primarily driven by superior stock selection in Industrials (19% vs 10%), Consumer Staples (17% vs 14%), and Info Technology (10% vs 4%). Our weakest performance was in Consumer Discretionary (8% vs 12%).

Figure 3: Relative Sector Performance for 1Q13 (CVI 200 average vs S&P 500)
Insights_CVI200-Sector-Performance-Q1-2013
Source: Bloomberg

The median gain was 11.3% with 20% of the names declining in value and 8% of the names rising by more than 30%. Interestingly, the worst and best performing companies in the Index were Consumer Discretionary mattress companies, as Select Comfort Corp (SCSS) declined by 25% while Tempur-Pedic (TPX) rose by 58%. However, this is more a reversion to the mean as on a year-over-year basis, both companies are down over 40%. The second top performer was LinkedIn (LNKD), the stock we published our in-depth research report on last May titled “LinkedIn: Disrupting By the “Power of We””, which rose by 53% as the Street started to recognize the true value creation power of the company’s unique heart and soul business model. The performance distribution is shown below in Figure 4.

Figure 4: CVI 200 Stock Performance Distribution Chart for 1Q13
Insights_CVI200-Stock-Performance-Q1-2013
Source: Bloomberg

We note that since its launch on November 15th, the CVI 200 has risen by 18.9% compared to a 15.8% gain in the S&P 500, an outperformance of 310 basis points. While we are encouraged by the CVI 200’s extraordinary level of short-term performance, it is important to keep in mind that the CVI 200 was designed not as a trading call, but as a means to offer long-term strategic investors a way to play the expected appreciation of social capital over the next decade.

We continue to believe that as Social Capital becomes an increasingly important predictive variable for stock price performance, investors will start to seek companies that are transparent, authentic, and engaging in terms of their core values, culture, and community.

Disclaimer: I have a LONG position in LinkedIn (LNKD-NYSE).