In any given year, hundreds of original exchange-traded funds (ETFs) reach to market. Typically, investors and ETF industry analysts wait for these original ETFs to accrue followings by assets, volume or both before rendering judgment regarding the viability of these rookie funds. However, there are occasions when some original ETFs catch the industry’s attention right out of the gate. That could be the case with the Brand Value ETF (BVAL), which debuted final week.
BVAL tracks the BrandTransact 50 Index, which equally weights 50 members of the Wilshire 5000 Total Market Index “that exhibit a reduction of brand and intangible asset value to market cap. In short, this index seeks to identify companies with unrealized brand value that contain high potential for margin expansion,” according to a statement issued by Exponential ETFs. (See also: Why Is Brand fairness Considered an Intangible Asset?)
While putting exact dollar figures on the value of specific brands can be tricky, there is no denying that brand value is meaningful to the companies that possess it and that it can benefit investors. This could be why some analysts are enthusiastic approximately BVAL even though the ETF is still in its infancy. “As the name suggests, the objective of the fund is to identify and track undervalued U.S. companies based on the value of their brand,” said AltaVista Research in a recent note on BVAL. “With an expense ratio of 65 basis points, the fund is expensive for a U.S. fairness ETF, although not uncommonly so for small, original entries to the ETF market.” AltaVista said it recently initiated coverage of 12 original ETFs, including BVAL, but only the brand value ETF stood out as “particularly noteworthy or appealing.”
BVAL tracks the BrandTransact50 Index (BTW50), which “uses a rules-based methodology to identify strong brands that maintain brand fairness value not recognized in share price. The BTW50 represents those top 50 companies, equally weighted, determined per the scoring process,” according to Exponential ETFs. BVAL’s top 10 holdings include The Boeing Company (BA), Tiffany & Co. (TIF), Whole Foods Market, Inc. (WFM), American Airlines Group Inc. (AAL) and The original York Times Company (NYT). (See also: What Are Some Examples of Companies or Products That contain Outstanding Brand fairness?)
“Investors including Warren Buffet know how valuable a top-notch brand name can be, but the pain is in measuring that value since it is an intangible asset (unless it is acquired, in which case it becomes goodwill that, perversely enough, is depreciated over time even though it may well be an appreciating asset),” according to AltaVista. “The methodology behind BVAL seeks not only to degree brand value, but then to screen for and invest in companies that are trading at a reduction to that brand value.”
AltaVista has an ALTAR score of 7.2 percent on BVAL, the highest of the 12 original ETFs on which the research firm initiated coverage. (See also: How Companies Create a Brand.)