Innovative Companies Continue to Outperform the Market, Despite Headwinds in Global Economy

Staff Report

Wednesday, October 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 a quarterly update of two new indexes by The Conference Board.

In the third quarter, The Conference Board Innovation α Index Powered by MCAM for the United States faced greater challenges due to market volatility which slightly lowered its quarterly returns relative to its benchmark (the Russell 1000). At the same time, the Innovation α global index, which tracks innovative companies worldwide, demonstrated robust performance relative to its benchmark (the MSCI World Index). In particular, electronic technology manufacturers continue to bear the brunt of the uncertainty caused by global trade disputes. Communications and data management (Software as a Service (SaaS), data analytics, data transmission) industries remain resilient because of a focus on domestic markets and less exposure to slowing global trade.

The Conference Board Innovation α Index Powered by MCAM was 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.

"Companies that invest in innovation will deliver increased value to customers, employees and owners," said Bart van Ark, Executive Vice President and Chief Economist at The Conference Board. "However, the rise in global uncertainties is not only a potential threat to the global economy but is also making the returns on innovation susceptible to volatility, making them harder to interpret. Companies with diversified business sectors and supply chains, a capability in global integration, and feasible and flexible intellectual property management should prove to show more market resilience powered by their innovation."

"Given the Innovation a® United States Index's exposure to companies heavily impacted by the ongoing trade dispute between the US and China, US technology companies suffered equity price volatility disproportionately during the third quarter," said David Martin, CEO of M·CAM International.

Latest insights from the Innovation α Index

The latest results are based on the rebalancing of the indexes on the first trading day of each quarter. The indexes are benchmarked annually every January.

Based on the latest quarterly reconstitution of the weights, moving into the fourth quarter, technology services and producer manufacturing will see continuing declines in weights in the fourth quarter. In contrast, companies in communication, energy minerals, consumer nondurables, consumer durables, and industrial services see increasing weights in the US index. Weights for many companies in the electronic technology, technology services, producer manufacturing, health technology, and finance sectors are showing declines. Strikingly, companies in health technology and financial services are showing increased weight in the global index, while they exhibit declines in the US index.

"Looking ahead, the indexes suggest companies in communications and data management sectors have an advantage deriving from their innovation investments, especially those that are  investing in proprietary innovations, as well as  those serving consumer markets, both in durable and non-durable goods," said Ataman Ozyildirim, Senior Director, Economic Research at The Conference Board. "In contrast, producing manufacturing and electronic technology manufacturing industries are likely to be exposed to risks in global value chains and trade disruptions as some of their products become more and more commoditized."