E X H I B I T 2 Summary of Annualized Returns, Year-End December 2006 through December 2015
Source: eVestment, all U.S. equity universe.
The founder-CEO index demonstrates a clear advantage over the VUG constituents on factors such as sales growth and R&D. Annualized five-year sales growth is 33% higher among founder CEOs, and the R&D-to-sales ratio is + 44% higher. By contrast, founder-CEOs hold a significantly lighter weight in sev- eral key sectors during our time period, including IT (19.54% versus 29.72%). 34 However, given the concen- trated nature of the founder-CEO index (30 holdings, rebalanced quarterly), we note the potential for signifi- cant sector variation on a year-to-year basis. 35 We rec- ognize that significant differences in sector weights can change the overall profile and total returns significantly. However, we find that regardless of sector weights in the index at any point in time, the performance dif- ferential (rewarding the founder-CEO index) tends to favor three sectors (i.e., IT, Health Care and Con- sumer Discretionary). 36 Moreover, the founder-CEO index tends to underweight Energy, Industrials, and Consumer Staples (where this index tends to underper- form or hold relatively light weights). By comparison, most U.S. large-cap growth indexes also overweight the same sectors and, in fact, may hold higher weights.
A few descriptive statistics are shown in Exhibit 1 (as of December 31, 2015).
HOW DID THEY PERFORM? RETURN SUMMARY
Exhibit 2 provides a summary of annual- ized returns comparing the founder-CEO index to the VUG for the period of December 2006 through December 2015. 37 Of the three distinct periods shown, the founder-CEO index outperforms the comparative benchmarks in all three one-year, three-year, and five- year periods. 38 Moreover, during the five-year period of January 2011 through December 2015, the annual- ized return of 16.58% for founder-CEOs ranks among the top one percentile on the eVestment database of 3,287 comparison funds within the All U.S. Equity Universe. 39 This return is well above the norm among all U.S. equity funds and 3.16% above the 13.42% annualized return for the benchmark fund. 40 During the three-year period (2013–2015), the founder-CEO index provides a 20.98% annualized return versus the U.S. large-cap benchmark return of 16.30%. This
L EADERSHIP M ATTERS : C RAFTING A S MART B ETA P ORTFOLIO WITH A F OUNDER -CEO T WIST
W INTER 2017
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