ACSI Funds rolled out a new exchange traded fund that targets companies with high customer satisfaction as a way to outperform the broader equities market.
On Tuesday, ACSI Funds launched the American Customer Satisfaction Core Alpha ETF (BATS: ACSI). ACSI has a 0.65% expense ratio.
The new ETF is based on the American Customer Satisfaction Index (ACSI), the leading measure of customer satisfaction in the U.S.
“The opportunity to make this work accessible to all investors is an important addition to the wealth management marketplace,” Kevin Quigg as Chief Strategist at ACSI Funds, said in a note. “The proprietary ACSI data provides a unique, intuitive, and valuable factor in building stock portfolios that deliver long term investment growth.”
ACSI tries to reflect the performance of the American Customer Satisfactions Investable Index, which utilizes a rules-based methodology to measure the performance of large-cap U.S. stocks by gathering data from customers and utilizing a proprietary econometric model to determine a customer satisfaction score. The underlying index is sector-weighted to reflect the overall U.S. large-cap market and security-weighted based on ACSI customer satisfaction data.
“When applying our index methodology to historical ACSI customer satisfaction scores (all of which were published historically in-sample), the back-tested index data further reinforces the efficacy of our strategy and proprietary customer satisfaction data,” Phil Bak, CEO of ACSI Funds, said in a note.
ACSI survey data is based on questions that measure customer expectations, perceived quality and perceived value, according to the prospectus sheet.
Customer expectations is a measure of consumer’s anticipation of the quality of a company’s products or services, representing both prior consumption experience, which includes some nonexperiential information like advertising and word-of-mouth, and a forecast of the company’s ability to deliver quality in the future.
Perceived quality is a measure of the customer’s evaluation through recent consumption experience of the quality of a company’s products or services.
Lastly, perceived value is a measure of quality relative to price paid.
The indexing methodology helps provide a rules-based approach to investing in consumer satisfaction.
“Many companies collect customer satisfaction data regularly but few companies know how to use the data effectively to drive bottom line performance of their firms,” Tomas Hult, Byington, Endowed Chair at MSU and director of MSU’s International Business Center, said in a note.
The basic premise of the ACSI’s strategy is based on research from the University of Michigan. According to the research paper, Stock Returns on Customer Satisfaction Do Beat the Market: Gauging the Effect of a Marketing Intangible, by Claes Fornell, Forrest V. Morgeson III and G. Tomas M. Hult, stock returns on customer satisfaction do beat the market, with the cumulative returns at 518% from 2000 to 2014, compared with a 31% increase for S&P 500 companies.
“As suggested by the sheer size of the abnormal returns, the reward for having satisfied customers is much greater than is generally known, generating abnormal stock returns of about 10% per annum,” according to the research paper. “Given this, why are many firms not focusing adequate attention to improving the satisfaction of their customers? The explanation for this phenomenon is likely to be found in inadequate satisfaction data collection and analysis derived from a general misunderstanding of just how valuable satisfied customers are to the firm.”
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