Barbara Gray, CFA – May 15, 2013 – On November 15th, we launched the Customer Value Index 200 (CVI 200) – a research-based analysis that provides investors with exposure to the top 10% of North American-listed companies with a market capitalization over $1 billion that score the highest in terms of competitive strength, social attributes, and authentic core values. We are pleased to report that in the first six months since its launch, the CVI 200 rose by 25.5%, outperforming the 21.8% gain in the S&P 500. As shown in Figure 1, the CVI 200 maintained a positive spread over the S&P 500 for the entire six-month period, peaking at 400 basis points on May 10th and ending at 380 basis points.

Figure 1: Six-Month Performance of CVI 200 vs S&P 500 Since November 15th Launch
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Source: Bloomberg
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Interestingly, just over half of the 380 basis points of outperformance of the CVI 200 was driven by superior stock selection. As shown in Figure 2, the average return of the companies in the CVI 200 outperformed the S&P 500 sub-sector returns in three of the four heavily weighted CVI sectors: Info Technology (25% vs 14%), Industrials (29% vs 23%), and Consumer Staples (22% vs 24%). Our weakest performance was in Consumer Discretionary (23% vs 28%).

Figure 2: Relative Sector Performance for First Six Months (CVI 200 Avg vs S&P 500 Index)
6mo-stock-performance-dist-cvi200-2
Source: Bloomberg
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The median gain for the CVI 200 was 23.0% with 12% of the names declining in value (the worst performing being Rackspace (RAX) which declined by 29%) and 35% of the names rising by more than 30% (the best performing being Tempur-Pedic (TPX) which rose by 93%). The performance distribution of the stocks in the CVI 200 is shown below in Figure 3.

Figure 3: CVI 200 Stock Performance Distribution Chart for First Six Months
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Source: Bloomberg
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While we are encouraged by the extraordinary high level of outperformance of the CVI 200 in the first six months since its launch, we believe 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. The Social Era is starting to descend on Wall Street as evidenced by a recent survey done by MarketWired that shows 40% of investment professionals are using social media to research investments (increasing to 60% for the under-40 crowd). As social media turns the silent majority into a revolutionary force of highly connected and empowered consumers, employees, and suppliers, we believe Social Capital will become an increasingly important predictive variable for stock price performance. And investors will start to seek out companies that are transparent, authentic, and engaging in terms of their core values, culture, and community.