Family Owned Companies ETF, Index and Index prototypes

The idea of investing in companies whose CEO is also the founder and owner of the firm is solidly sound. As these companies tend to achieve a long-term outperformance, which is posited and verified in a body of literature.

  1. BOSS

It’s just not that easy to filter through a broad market universe to find such a group. By present, there are two such indexes existing and available to be licensed for creating corresponding ETF or other passive funds. One is the Solactive Global Family Owned Companies Index launched in early 2016; the twin product is the Solactive U.S. Founder-Run Companies Index, which is licensed to Global X for creating BOSS, the Global X Founder-Run Companies ETF. The AuM as of November 28, 2017 is a meagerly $2.63 million and the expense ratio is 0.65%.

The Solactive index is based on global research by the University of St. Gallen, which lists the 500 biggest companies by revenue, where families hold at least 32% of the voting rights. Out of this universe, all listed companies at a regulated and approved stock exchange are further considered as components of the index. All stocks whose market capitalization is greater than $1 billion and whose average daily value traded over the last three months equal or exceed $10mn are eligible for the index. Out of this selection, the Top 50 companies with the lowest volatility (12-month volatility) are chosen for the index and are weighted by inverse volatility with a cap of 5%.

For ranking purposes, a family business is defined as follows: for a privately held business, the family must control more than 50% of the voting rights; and for a publicly listed business, the family must control at least 32% of the voting rights. It is generally assumed that 30% of the votes in a publicly listed business is sufficient to dominate the general assembly. This is because roughly 60% of the votes are present in the general assembly. Nevertheless, the Family 500 decided to be more conservative and used a 32% cutoff for the classification of publicly listed businesses. Top-ranked companies are as follows:

  • Wal-Mart Stores, Inc. United States Retail and wholesale
  • Volkswagen AG Germany Automotive
  • Berkshire Hathaway, Inc. United States Asset management
  • EXOR SpA Italy Asset management
  • Ford Motor Company United States Automotive
  • Cargill, Incorporated United States Retail and wholesale
  • Koch Industries Inc. United States Oil and gas
  • Bayerische Motoren Werke AG (BMW) Germany Automotive
  • Schwarz Group Germany Other sectors
  • Groupe Auchan France Asset management
  • Arabian Fal Group Saudi Arabia Engineering and construction
  • Arcelor Mittal Luxembourg Diversified industrial products
  • Louis Dreyfus Holding B.V. Netherlands Asset management
  • Reliance Industries Limited India Oil and gas
  • PEUGEOT SA France Automotive
  • Comcast Corp. United States Media and entertainment
  • CASINO GUICHARD-PERRACHON France Retail and wholesale
  • America Movil SA de CV Mexico Telecommunications
  • Itau Unibanco Banco Multiplo SA Brazil Banking and capital Markets
  • The Long & Foster Companies, Inc. United States Real estate
  • Roche Holding AG (Roche Group) Switzerland Life sciences
  • Enterprise Products Partners LP United States Oil and gas
  • AP Moeller/Maersk Group Denmark Other sectors
  • Continental AG Germany Automotive
  • Xenel Industries Co. Ltd. Saudi Arabia Diversified industrial products
  • JBS SA Brazil Consumer products
  • Christian Dior SA France Consumer products
  • Odebrecht SA Brazil Real estate
  • LVMH Moët Hennessy Louis Vuitton SA France Consumer products
  • Tata Motors India Automotive
  • Bechtel Group Inc. United States Real estate
  • ALDI Group Germany Retail and wholesale
  • Sears Holdings Corp. United States Retail and wholesale
  • IKEA Group Netherlands Consumer products
  • Koc Holding AS Turkey Asset management
  • Tyson Foods Inc United States Consumer products
  • Hutchison-Whampoa Ltd. Hong Kong Asset management
  • Mars Incorporated United States Consumer products
  • George Weston Ltd. Company Canada Retail and wholesale
  • Pilot Travel Centers LLC United States Retail and wholesale
  • 21st Century Fox United States Media and entertainment
  • Ray White Group Australia Real estate
  • Gulf Agency Co. (Dubai) LLC United Arab Emirates Prof firms and services
  • Formosa Petrochemical Corp Taiwan Oil and gas
  • PHOENIX Pharmahandel GmbH & Co KG Germany Life sciences
  • H. Alshaya Co. WLL Kuwait Consumer products
  • Publix Super Markets Inc. United States Retail and wholesale
  • Power Corp. of Canada Insurance
  • Essar Energy PLC United Kingdom Oil and gas
  • Loves Travel Stops & Country Stores Inc. United States Oil and gas

The Solactive U.S. Founder-Run Companies Index is composed of the 100 largest founder-run companies in the Solactive U.S. Broad Market Index. The components are equally weighted and readjusted annually. The fund that is tied to this index, BOSS, was just launched early 2017, and has so far achieved a better performance than the market.

  1. Credit Suisse Family Index

Early in 2007, Credit Suisse HOLT team has created a family index based on a similar hypothesis.

The screening is based on a proprietary scoring model, in which factors are divided into three categories: the Operational category identifies companies with appealing corporate performance characteristics; the Valuation category finds stocks that are attractively valued according to HOLT’s DCF model and the Momentum category puts the spotlight on stocks that are gaining from positive market sentiment. The factors and categories are scored from 1 to 5, with 5 being the best, and then weighted to give an overall score per company.

On each Semi-Annual Rebalancing Date, a liquidity filter is applied to this universe to create an eligible universe of stocks. Only those companies whose stocks have an average trading volume of more then US dollars 10 million per day over the last six month period will be included in the eligible universe. The HOLT scoring model is then used to rank the stocks in the eligible universe, and the top 40 stocks will constitute the Index for that period.

According to the appendix 5, to qualify as a constituent company, a company should have a minimum of 10% of share capital controlled by family and/or management and be listed on a regulated stock exchange in the United States or in Europe.

The 172 companies listed in document constitutes the current (2007) universe of family – controlled companies, based on which, HOLT score will be applied to narrow down the total number of stocks to be 40.

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