Chantal Marx
The BrandZ Global Top 100 report was released at the end of June. The report showed that Apple maintained the honours of being the most valuable brand in the world for a third year running. Generally, brand values climbed, with the Top 100 adding 20% in brand value after a fall of 20% in the prior year. The strength of these brands is particularly impressive when considering that the Top 100 brands have gained 76% in brand value from pre-Covid levels.
Apple's brand value appreciated by 30% - ahead of its closest brand giants Google (+15%) and Microsoft (+23%). Fourth-placed Amazon saw its brand value jump 42% over the year. The top five was again rounded off by McDonalds (+16.1%).
The fastest growing brand this year was Nvidia (+178%). The chipmaker re-entered the Top 20 in sixth place after falling out of the Top 20 in 2023 as its AI capability took centre stage in the last year. Other brandsgrowing quickly included Meta apps Instagram (+93%) and Facebook (+79%), Google Cloud (+74%) and Uber (+71%). In terms of business, technology and services platforms (+45%) and media entertainment (+34%) showed the strongest growth. Conversely, telecoms (-1%) and personal care (-1%) saw their brand values decline on an aggregate basis.
We have been running a concentrated 20-stock mock portfolio for the last 11 years based on this survey. Brand remains a key consideration in valuing the investment and financial potential of companies. According to David Muir of WPP, in 1977 intangible asset values (brands, trademarks, patents, etc.) were roughly comparable to the tangible values of companies. Twenty years later, intangible values stood at more than three times that of tangible values and 37 years on, the value difference is even more pronounced. The reason for this is that if a company delivers on its brand promise, it can experience a “herding effect” in sales growth. People are more likely to purchase or use a product if others are doing so to. Theoretically, this sales growth should then filter down to earnings and translate into higher shareholder returns.
Portfolio modelling methodology
We model (by way of an exercise) a portfolio consisting of the top 20 brands weighted according to brand value as measured by BrandZ™. The portfolio is reweighted and realigned annually according to brand value approximately a month after the rankings are released.
Portfolio performance
The Brand Portfolio added 18.3% between 31 July last year and 31 July 2024, slightly underperforming the MSCI World Index and the S&P 500. The underperformance was mainly due to the strong performance of the US tech sector and the larger weight of the so-called "Magnificent Seven" in these indices compared to the brand portfolio. The portfolio has, however, strongly outperformed the MSCI World Index and the S&P500 index across a five and ten-year investment horizon. Over the past year, the MSCI World added 18.9% and the S&P 500 is 22.1% higher. Over ten years, the Brands Portfolio delivered an annualised return of 17.5% (MSCI World: +11.2% and S&P 500: +15.6%).
Changes to the portfolio for the coming year
For the 2023 portfolio, we have Alibaba, AT&T and The Home Depot exiting the top 20 and Nvidia, Adobe and Accenture entering the portfolio. Per our methodology, Apple will carry the largest weight in the portfolio this year, followed by Alphabet and Amazon.
Conclusion
The Brands Portfolio appears to offer relatively steady returns over time - for the most part due to the combination of new, exciting brands and mature, iconic brands. The former provides impetus for stock price appreciation, while the latter is expected to offer stability and downside protection to a certain extent. The portfolio is therefore expected to underperform during periods of rapid stock market appreciation and outperform during periods of contraction or uncertainty.
As we have always highlighted in the past, this strategy does not come without its fair share of risks. Concentration risk is a key concern - the portfolio is heavily exposed to North America and Industrial counters, particularly those with a technology or telecoms focus. Perhaps most important to note is that brands can fall out of favour quickly - consider the demise of BlackBerry after the launch of the iPhone as one example, or more recently how the rise of Netflix has disrupted cable companies like HBO and ABC.
Longer term, the overall return is higher, or in line with our benchmarks, and the strategy has proven superior on a risk-adjusted basis.
