Innovative Companies Outperform the Market, Despite Headwinds in Global Economy

Staff Report

Tuesday, July 2nd, 2019

The most innovative companies in the United States and global stock markets are not shielded from significant challenges in terms of stock market performance, according to two new indexes which The Conference Board will begin publishing today.

The indexes, which measure the financial performance of innovative companies, show they generate better financial performance in the long run relative to their benchmarks. However, moving into the third quarter, the indexes predict that companies in the Electronic Technology Manufacturing sector are facing the greatest challenges from global trade disputes and geopolitical uncertainties, while those focusing their innovations on data management are demonstrating the greatest resilience in the global market.

The Conference Board Innovation α Index Powered by MCAM is developed by M•CAM, an investment firm that analyzes intellectual property and intangible assets to support credit and equity products. It consists of two indexes which rank and identify the 100 most innovative US companies in the Russell 1000 universe of companies and the 120 most innovative global companies in the MSCI World Index universe of companies, respectively. The selection is determined by the potential of those companies to generate substantial revenue growth through the use of proprietary technologies and innovations. The rankings result from a series of algorithms that gauge a company's innovation standing by analyzing their patents, trademarks and copyrights and the value generated from them.

"Firms that invest time, financial resources, and human capital in innovation can deliver increased value to customers, employees, and owners," said Bart van Ark, Executive Vice President and Chief Economist at The Conference Board. "The new indexes fit squarely within our research program on innovation and intangible investment and will provide a new resource for The Conference Board to develop insights for what's ahead in US and global innovation, serving the finance and innovation communities among our members."

Latest insights from the Innovation α Index
The Conference Board will publish the latest results based on the rebalancing of the indexes on the first trading day of each quarter. The indexes are benchmarked annually every January. The latest quarterly reconstitution (July 1) of the company weights included in the index indicates that despite the long-term outperformance of the Innovation α Indexes relative to their corresponding benchmarks (the Russell 1000 and the MSCI World Index, for the U.S. and global indexes, respectively), some sectors have become more exposed to recent economic and geopolitical headwinds during the second quarter. Electronic technology manufacturers have borne the brunt of the uncertainty in global trade disputes reaching across telecommunications, health technology, and business machines.

Based on the latest quarterly reconstitution of the weights, moving into the third quarter, companies in the health technology, finance, and consumer non-durables see increasing weights in the US index; whereas, weights for many companies in the technology services, process industries, industrial services, and consumer durables sectors are showing declines. In the global index, consumer non-durables, health technology, technology services, and manufacturing see increasing weights in the third quarter; whereas, the electronic technology sector is experiencing a decline. Innovations in data management are demonstrating resilience in the global market, shielding them from negative effects from trade disruptions. Consumer non-durables that are performing well are those that have focused their innovation on the materials supply chains that are going into their products. Companies that have innovated end-product designs or delivery are struggling. 

"Looking ahead, the innovation Index shows that companies that have successfully integrated technology to create content or media delivery (for example, gaming)  generate greater expectations for financial performance in the third quarter and are likely to be more resilient in volatile markets," said Ataman Ozyildirim, Senior Director, Economic Research at The Conference Board. "From media and entertainment to health care to defense and infrastructure, companies focused on innovations in making information or services accessible and easier to use are out-performing those mostly focused on pure technology or media businesses."