1. The American Customer Satisfaction Core Alpha ETF (ACSI) has been up, up, and away since last November’s launch. Besides the current market environment having been a good one for stocks, what are the specific catalysts driving the ETF’s performance?
The American Customer Satisfaction Core Alpha ETF (ticker: ACSI) is based on our proprietary research into the impact of customer satisfaction on security performance. Companies with satisfied customers have greater buyer loyalty, repeat purchasing and over the long term we think these companies will perform better than their competitors who have lower customer satisfaction. This year we have seen companies who have scored well historically like Amazon and Netflix have substantial gains as they have both increased market share as well as customer reach. The key to our portfolio performance is managing diversity (we maintain exposure in every economic sector) while identifying those companies within each sector whose customer satisfaction may lead to long term outperformance. As the name suggests, we designed the fund to be a core U.S. equity holding with representation in every sector of the U.S. economy.
Other than seeking to capture the upside of some of the better performing stocks, we believe the ACSI ETF also handles the volatility in the market well. One of the byproducts of not relying solely on traditional financial metrics is the ability to avoid being “regime dependent” where one’s performance is primarily tied to a single market factor. We look to use our systematic informational process (our ACSI company scores) to weight each market sector with the companies that are leaders of their respective industries in the eyes of the customers who will determine their ultimate success.
2. With plenty of the Fund’s exposure to the consumer, are there economic data points you watch closely to help you determine how the fund’s allocation should look?
We maintain exposure to a wide array of companies who are involved in all parts of the economy. We maintain exposure to the traditional GICS (global industry classification standard) sectors to assure we are not taking any inadvertent bets on any one sector. Our strategy is designed to identify companies within each sector that are poised to outperform their industry peers thus giving investors a responsible, diversified core holding for their portfolio. The data point that we rely upon is our proprietary customer satisfaction rankings which encompasses a whole host of underlying data points. Specifically these ratings look to uncover company specific attributes like “elasticity” (ease with which a customer can change their buying habits), “perceived value” (a customer’s internal cost/benefit analysis), “leadership share” (how dominant is a company within their given market segment) as well as many other factors.
What all of these measures have in common is that they are derived from the customers of the organizations themselves as opposed to being supplied by the organizations we measure (in the form of earnings announcements, etc). This is important because it allows our data to get “in front of the earnings report” as earnings are a backward looking metric as well as gives us unique insight into companies that the rest of the investing public cannot access. ACSI has over 20 years of experience studying and researching how customer satisfaction impacts a company’s performance.
3. Valuations continue to be one of the areas nervous market-watchers point to as what is keeping them up at night. Is there anything you’re keying on that would make you nervous about the markets in the near-term?
While it doesn’t quite make us “nervous,” one area we’re keeping a close eye on is the speed in which the market has risen. Since the election of President Donald Trump, the S&P 500 is up roughly 18 percent, yet there’s no way the U.S. economy could have become 18 percent more valuable over such a short period of time. This leads us to believe there might be some disconnect between stock prices and their true underlying values.
In our opinion the market has risen in part due to the Trump administration’s promises to deregulate and cut taxes. This led to a rising tide where nearly every sector benefitted from this rhetoric. However, those gains are eventually going to be redistributed to winners and losers depending on how these policies shake out, which will ultimately impact different industries in different ways. The key to assuring investors access the best combination of the markets short term ebbs and flows (which are driven in large part by macro factors) is to identify those companies that are poised to take advantage or withstand whatever headwinds or tailwinds (tax, regulatory, other) exist in the marketplace. These companies will gain market share on their competitors as well as withstand market downturns most smoothly. Customer satisfaction has historically been a very good guide in identifying these types of companies.
4. With the American Customer Satisfaction Core Alpha ETF being the firm’s debut fund, what were some of the biggest learning curves you had in taking the ETF from idea to conception?
Our CEO, Phil Bak, and I have spent a combined 30 years working in the ETF industry bringing different products to life. The reason that is important is that we both had a sense of many of the challenges that awaited us.
The biggest challenge is creating awareness for what is a unique, differentiated strategy. The ETF market for wealth managers has begun to slowly move away from traditional cap weighting as evidenced by the growth of Strategic Beta based products. Our strategy takes this premise to the next frontier by injecting our proprietary insight into the security selection process. This is a new way of building U.S. equity exposure (measuring a market “intangible”) and, as such, takes time to create awareness around.
The other challenges (managing secondary market liquidity, managing fund rebalances, developing client resources, etc.) are things that we have been able to handle relatively seamlessly due to our experience in prior organizations.
5. Could you give us a peek at what may be coming next out of the ACSI Funds lab?
We’ve recently been busy launching Exponential ETFs, our wholly owned platform that allows select asset managers to leverage ACSI’s operational capabilities, product development experience and regulatory oversight to launch new ETFs. Exponential ETFs and our first partner, Brandometry, recently launched the Brand Value ETF (NYSE: BVAL), which is designed to outperform the broader market by identifying companies with strong and rising brands.
From here, we plan on leveraging the tools at our disposal to continue bringing truly unique solutions to investors that fill a market void. Whether it be through partnerships with other asset managers via Exponential ETFs or under the ACSI Funds brand, we remain committed to this mission.
An investor should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus or summary prospectus contain this and other important information about the Fund and are available at acsietf.com or by calling 734.882.2401. Please read the prospectus or summary prospectus carefully before Investing.
Past performance does not guarantee future results.
It is not possible to invest directly in an index.
Investments involve risk. Principal loss is possible. The securities of large-capitalization companies may be relatively mature compared to smaller companies and therefore subject to slower growth during times of economic expansion. American Customer Satisfaction Core Alpha ETF (the “Fund”) seeks to track the performance, before fees and expenses, of the American Customer Satisfaction Investable Index (the “Index”). The Index relies heavily on proprietary quantitative models as well as information and data supplied by third parties (Models and Data). Because the Index is composed based on such Models and Data, when such Models and Data prove to be incorrect or incomplete, the Index and Fund may not perform as expected. As With all index funds. the performance of the Fund and its Index may differ from each other for a variety of reasons. For example, the Fund incurs operating expenses and portfolio transaction costs not incurred by the Index. In addition, the Fund may not be fully invested in the securities of the Index at all times or may hold securities not included in the Index. The Fund has the same risks as the underlying securities traded on the exchange through the day. Redemptions are limited and often commissions are charged on each trade, and ETFs may trade at a premium or discount to their net asset value. To the extent the Fund invests more heavily in particular sectors of the economy, the Fund’s performance may be more sensitive to developments that significantly affect those sectors.
Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security.Please click here for fund holdings.
Click here for the standardized performance.
The performance data quoted above represents past performance. Past performance is not a guarantee of future results. Investment return and value of the ETF shares will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance, current to the most recent month-end, call 734-882-2401. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Total Returns are calculated using the daily 4:00pm net asset value (NAV). Market returns are based on the composite closing price and do not represent the returns you would receive if you traded the shares at other times. The first trading date is typically several days after the fund inception date. Therefore, NAV is used to calculate market returns prior to the first trade date.
The S&P 500 Index is a market capitalization-weighted index focused on the large-cap segment of the market. The index is comprised of 500 of the top companies in leading industries in the U.S. economy. It is not possible to invest directly in an index.
ACSI Funds, a registered investment adviser, serves as investment adviser to the American Customer Satisfaction Core Alpha ETF and is paid a fee for its services.
The American Customer Satisfaction Core Alpha ETF is distributed by Quasar Distributors, LLC