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How to make money by investing in reputation
Savvy investors are putting their money in companies with a good reputation as a way to recession-proof their portfolios, according to new research.
How to make money by investing in reputation
Savvy investors are putting their money in companies with a good reputation as a way to recession-proof their portfolios, according to new research.
The new report, by AMO and Financial and Corporate Relations (FCR), found that the top 15 market indices owe more than a third of their valuation to corporate reputation, giving investors a $16.77-trillion pay bump.
Angus Maitland, co-chairman of AMO, believes that in a more complex world with increased volatility, investors are increasingly sensitive to companies’ reputation.
“When times get tough, it will be the companies with stronger, more balanced corporate reputations that will ride the ensuing storm more effectively, protect value and come out on top. Understanding the triggers that will protect and enhance the value of their company’s reputation is crucial to managers of any listed company,” said Mr Maitland.
On the flipside, companies with a poor reputation suffered in the last financial year. More than one in five companies in the world’s top stock market indices suffered market cap erosion due to their poor corporate reputation.
According to the report, the four most important factors driving stock prices around the world are: investors’ perception of a company’s long-term value, quality of management, financial soundless and ability to manage – with ESG not appearing on the list.
FCR managing director Anthony Tregoning believes certain sectors in the Australian economy will lose out due to a poor reputation.
“Corporate reputations contribute value particularly in high future-potential sectors such as technology, telecoms and healthcare, with technology companies enjoying an average reputation contribution of 43 per cent over the value implied by financial metrics alone. However, 21 per cent of companies have reputations so poor that they are actively destroying market capitalisation,” said Tregoning.
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