How to rebrand stockmarket indices

GGood morning, and thank you for inviting me to Hieroglyph Capital Partners. You asked us to demonstrate our marketing skills by selecting an aspect of your branding for review. Now, this may be eccentric, but we’ve picked your tracker funds. Hieroglyph’s green investment program, its philanthropic work, or its industry-leading quantitative analysts are all more obvious candidates for our attention. Tracker funds are boring, and intentionally so: they’re just algorithms designed to help your investors replicate the performance of stock market indexes as cheaply as possible.

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Aside from the choice of index, everyone is like everyone else. But an unassuming product doesn’t rule out a strong brand—it calls for one. Think airlines. Or perfume. Or lager. More importantly, the boring reasons to choose passive funds over actively managed funds are becoming increasingly difficult to sell. Investors like to buy a cheap fund that will indiscriminately track the market’s return when things are going in the right direction. But even when they know that virtually no active manager beats the market over the long term, it becomes harder to remember when they’re losing money. This year many of them have lost a lot. They begin to wonder if a good stockpicker could have saved them from the worst.

Convince investors to associate a fund with a compelling brand, and not just its fact sheet and key investor document, and you have a better chance of keeping them. A successful brand consists of three components. It differentiates itself from its competitors and is relevant to your clients and their investment goals. Crucially, it also has “proof points” or evidence that it is delivering on its promises. Which brings us to our three case studies: hieroglyphs s&p 500 fund tracking the index of large American stocks; the Nikkei 225 fund, which tracks Japanese companies; and the ftse 100 fund tracking the top 100 companies listed in London.

That s&p 500 funds already stands out. Investors know that it’s heavily biased toward tech companies and that it includes the biggest corporate winners of the past few decades, Apple, Amazon, and Alphabet. This makes them see it as both a safe bet – betting on established winners – and a bet on the future. But its relevance and evidence points look shaky. Investors like the idea of ​​risk-taking, innovative companies, but only if their stock prices go up. So far this year the s&p 500 is down 20%. That’s not in line with anyone’s investment goals.

The key is to downplay the exciting, tech-driven, disruptive side of s&p 500. Call it the “All American Fund” instead. After all, the index covers four-fifths of the American stock market value. That makes it a proxy for the world’s largest economy, well positioned to weather a recession. Investors will look for confirmation as the market continues to fall. give it to them

There is another fund that would benefit from a similar approach. Investors still associate Japanese stocks with deflation, weak corporate governance and the bubble of the 1980s. But today, inflation at just 3% makes Japan safer than most economies. A weak yen should also be good for its exporters. You could do worse than dust off your Nikkei 225 fund and call it the “Safe Haven Fund.”

That ftse 100 funds is a trickier problem. It’s noticeable again. The absence of tech companies and the predominance of “old economy” stocks — energy, mining, and banks — are firmly entrenched in investors’ minds. Earlier this year, that seemed like a good thing. Tech looked foamy; Rising commodity prices and rising interest rates would help the dinosaurs roar. If Britain’s economy and currency were shaky, no matter: most ftseThe income of comes from outside the UK.

It did not work. Measured in dollars the ftse 100 is down 20% this year. To have stopped by like they did s&p 500, after radically underperforming for a decade, has investors wondering if London’s flagship index is good for anything at all. Dividend yield is said to be one answer, but at 3.7%, it’s little better than Treasuries these days.

Rather than rebranding, we suggest taking this fund out of the spotlight. A brand can only deliver if the product can. In terms of relevance, the value of the entire index is less than that of Apple. Stop marketing it to your customers and you’re sending them a message about Hieroglyph’s own brand: that you’re not trying to sell investors things they don’t need.

Read more from Buttonwood, our financial markets columnist:
Why Investors Should Forget the Delayed Reward (September 15)
EM equities struggle in an intangible world (September 8)
Why Investors Are Reaching for the Astrology of Finance (September 1)

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