High customer satisfaction has helped U.S. companies grow and out compete their competition. As a way to capitalize on this phenomenon, investors can look to a recently launched smart beta exchange traded fund.
ETF Trends publisher Tom Lydon spoke with Kevin Quigg, Chief Strategist at ACSI Funds, at S&P Dow Jones Indices, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about a strategy that capitalizes on the outperformance in companies that value its customers.
“The premise is simple – companies whose customers are pleased with the products and services they receive tend to out compete their competitors with customers that are less involved,” Quigg said. “The work comes in quantifying customer satisfaction.”
Research has revealed customer satisfaction allows firms to outperform what many market observers believed would be the company’s near-term performance as traders react to information once made public, which suggests that the markets may be underpricing or not factoring in customer satisfaction when valuating company stock prices.
This undervalued component of company stock analysis may leave potential returns on the table.
Investors can tap into the research on customer satisfaction through the American Customer Satisfaction Core Alpha ETF (BATS: ACSI).
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.
ACSI survey data is based on questions that measure customer expectations, perceived quality and perceived value, according to the prospectus sheet.
“The thought being, customers know in advance of the market themselves as well as traditional financial metrics where they are going to consume, and that should be a leading indicator of financial performance,” Quigg said.
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.