New York, NY – Can the actions and sentiment of online consumers be captured and synthesized into a meaningful signal for individual equity prices? One unique social media data and analytics provider, BrandLoyalties.com, purports to do just that for the institutional investor community. One measure of the efficacy of this service has outperformed the S&P 500 by an average of over 20% per year since January 2006.
So What Does BrandLoyalties Do?
How did BrandLoyalties.com do this? Insider information? Not exactly. In fact, they like to point out that in many cases they know how consumers are treating the brands of the large cap consumer equities even before the “insiders” at those corporations can fully realize themselves what is happening at the far end of their distribution channels.
BrandLoyalties.com tracks over 100 million online consumer choices daily and identifies which equities are likely to be impacted (positively or negatively) by changing consumer sentiment in those brands. The key criteria for coverage includes a significant online presence for the brand names of those equities (called the brand name’s web “luminosity”) and a reasonably strong link between on-line brand name citations and consequential revenue for the corporation (referred to as the “signal relevance” for that corporation’s brand names).
Brandloyalties.com uses a proprietary algorithm to determine the velocity of change in consumer brand loyalty — ranking the 500+ stocks on this measure from top to bottom each day. Signals derived from this analysis are generated well before earnings announcements and generally before guidance are provided. Each equity exhibits a unique lag time between when a signal is generated from the online data and subsequent price movement in the stock. The ‘best fit’ lag times are also provided to clients for each security in order to help optimize their buy or sell decisions.
The firm provides institutional subscribers with their unique proprietary metrics, as well as the raw research data it collects. This data helps investors easily identify those stocks exhibiting the characteristics of winners or losers. Clients may also choose to opt-in for daily email alerts which highlight the equities exhibiting the most significant trends. While investors are naturally interested in identifying equities with growing brand loyalty, users may also mitigate risk in existing portfolios by monitoring or avoiding stocks which display fading customer loyalty.
How Have BrandLoyalties’ Signals Performed?
A simple long-only proof-of-concept portfolio consisting solely of the top 10% of these 500+ ranked stocks would have produced an average annual ROI over the past 7 years in excess of 25% as compared to the S&P 500’s 3.33%. (Results from over 1,500 one-year Monte Carlo portfolio simulations covering January 2006 through December 2012, each portfolio equally-weighted and reallocated when composition of the top 10% changes.)
It is highly likely that BrandLoyalties’ clients have experienced even greater alpha if they overlaid their own internal fundamental or quantitative research to the simple brand loyalty metrics used in the proof-of-concept portfolios.
Examples of Positive and Negative Alerts:
On January 1st, BrandLoyalties.com sent out a “good news” e-mail alert, this time alerting clients that customers had been flocking to the brand names of MAS (Masco Corporation) during the fourth quarter. On February 12th, Masco management surprised most analysts by reporting earnings that confirmed the alert from over a month earlier and at the end of that day MAS shares were selling at more than a 17% premium to when the email alert went out.
On December 27th clients received an e-mail alert, warning that consumers had softened their interest in the brand names of LEAP (Leap Wireless International, Inc.) during the fourth quarter. On February 20th, Leap management confirmed that fourth quarter revenue had been disappointing, and at the end of the day LEAP shares were selling some 15% lower than the alert price.
Who is behind BrandLoyalties.com?
The BrandLoyalties.com web-site and service are the result of recent research from the Consumer Metrics Institute, Inc. (www.consumerindexes.com).
The Consumer Metrics Institute, which has been collecting data on ‘up-stream’ economic activities on a daily basis since 2004, was founded on a simple premise that many ‘leading’ economic indicators are published, but few (if any) are sufficiently ‘leading’ to be meaningful to investors. Their mission has been to utilize the on-line behavior of consumers to understand the dynamics of the US economy — in “real-time”.
The Consumer Metrics Institute was founded by Richard C. Davis. The Consumer Metrics Institute grew out of Mr. Davis’ frustration with the lack of timeliness and poor quality of information available to investors about the consumer economy in the United States. Mr. Davis graduated from college with a B.S. Cum Laude in Physics. Before founding the Consumer Metrics Institute, he held a number of positions, including founding principal of a NASD broker/dealer and registered investment advisor, and senior IT management positions with Fortune 500 firms.