Global X Funds, a provider of targeted exchange traded fund themes, has rolled out a strategy that specifically focuses on companies led by the original founders of their firms in an attempt to enhance returns and outperform the broader market.
The recently launched Global X Founder-Run Companies ETF (BATS: BOSS) tries to reflect the performance of the Solactive U.S. Founder-Run Companies Index. BOSS comes with a 0.65% expense ratio.
The underlying index is comprised of U.S. large- and mid-cap companies in which a founder or co-founder of the company is serving as the Chief Executive Officer of the company.
Research has revealed that public founder-run companies can be associated with more sustained periods of profitable growth, compared to non-founder-run firms, according to Solactive AG. The outperformance is partly explained by the long-term approach to business planning and strategic decision-making exhibited by founder-run companies.
“The founder-run investment theme builds on the idea of identifying companies that are run by a visionary CEO with a significant emotional and often also financial stake in the company,” Henning Kahre, Head of Research at Solactive AG, said in a note. “The concept naturally tilts towards growth and innovation and away from mature industries relative to a broad cap-weighted benchmark.”
Academic studies have also shown founder/CEO-led companies usually allocate more capital to research and development or other innovation investments while also relying on less leveraged capital structures, which can expose investors to potentially enhanced returns, compared to non-founder CEO companies.
“Bringing BOSS to market reinforces our goal of providing unique solutions for investors that are based on academic research and sound index construction,” Alex Ashby, director of product development at Global X, said in a note. “Founders bring a unique vision and innovative culture to their companies that we believe will translate into more sustainable long-term growth.”
The founder/CEOs of companies within BOSS’s portfolio show 10 times higher equity ownership in their companies than the average S&P 500 CEO. The founder/CEOs of the companies instill the owner’s mindset in their firms, reflecting their own set of core practices, values and attitudes that can support the firm over the long-term. These companies also typically avoid excess indebtedness, averaging 52% lower debt-to-equity ratios than the average S&P 500 company.
The underlying index’s sector weights include information technology 25.8%, health care 20.7%, consumer discretionary 13.2%, real estate 12.8%, financials 10.8%, energy 6.6%, industrials 4.8%, materials 2.6%, consumer staples 1.6% and telecom services 1.1%.
Top holdings include Nvidia Corp 2.3%, Seattle Genetics 1.7%, Masimo Corp 1.5%, Veeva Systems 1.4% and Netflix 1.4%.
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