{"id":8184,"date":"2023-06-15T16:11:55","date_gmt":"2023-06-15T14:11:55","guid":{"rendered":"https:\/\/hqam.ch\/?p=8184"},"modified":"2024-01-22T16:38:59","modified_gmt":"2024-01-22T15:38:59","slug":"corporate-excellence-award-winners-good-quality-translates-into-good-returns","status":"publish","type":"post","link":"https:\/\/hqam.ch\/en\/corporate-excellence-award-winners-good-quality-translates-into-good-returns\/","title":{"rendered":"Corporate Excellence Award Winners \u2013 Good Quality Translates into Good Returns"},"content":{"rendered":"\t\t
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Beauty Contest in Corporate World<\/strong><\/p>\n

Since 2008 every year we conduct a beauty contest in the corporate segment to give Corporate Excellence Award (CEA) to the best. We recognize beauty queens according to their corporate quality in 18 countries and 5 regions across the world. <\/p>\n

We were hardly discussing their stock market return before, though it deserves attention. Now it is time for a change. <\/p>\n

Figure 1: Corporate Excellence Award given to Lithuanian fashion retail company, Apranga, in 2018 as the best Baltic company<\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The methodology to select corporate excellence is very rigorous and includes several steps. First, we run a quantitative screen, evaluating company\u2019s financial conditions focusing on the financial health, stability, and strength of economic moat. Then, we proceed with the qualitative analysis, which includes business model, competitive edge, industry face- and headwinds\u2019 assessment. And the final touch are discussions among jury members, which are represented by practitioners and academics, to select truly best ones. It should be noted that company\u2019s valuation is not considered in the assessment process. <\/p>\n

Detecting excellence champions for many years in a row we noticed that corporate excellence status is rather stable. We usually do not have drastic changes among top companies every year. This fact works well with long-term approach – a necessary component when building investment portfolio. <\/p>\n

Figure 2: Number of times a company won Corporate Excellence Award since 2013<\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source: H\u00e9rens Quality AM<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Absolute champion is German kitchen equipment maker Rational, which was recognized as the winner in Germany for 11 years out of 11. Even during tough COVID times Rational managed to stay resilient and survived the storm, which particularly hardly hit restaurant industry – main customer segment. Rational\u2019s stock return since May 2013 is 178%, while European Stoxx 600 returned 57%. Another splendid longterm value provider is French luxury handbags maker Hermes, who was recognized as the winner in France for 10 out of 11 times. Its stock returned 684% vs. 38% of Stoxx 600. Among companies being named as country winners most often are found semiconductor industry players, fashion retail and health sector representatives. <\/p>\n

Winners\u2019 Stock Performance<\/strong><\/p>\n

Recognized country winners obviously have stellar fundamental characteristics, but does the market see and admire it, too? We have compared each country winner with the relevant regional equity benchmark. It was important to do so on the country level as the listed sample can differ by quality in various countries. For instance, traditionally, we have always seen that best 100 companies are crowded by the companies having headquarters in UK or Denmark or Switzerland, while it has been hard to find Austrian or Spanish companies qualifying for top 100. Majority of Excellence award winners manages to outperform their respective benchmarks. In average we see that 60% of selected companies outperform, which translates into the CEA portfolio outperformance vs. the benchmark composite (Fig.3). <\/p>\n

Figure 3: Average performance of Corporate Excellence Award winners vs. respective benchmarks 1 year after selection, annual period starts on April 1 and ends on March 31, includes European winners, benchmark is based on regional indices<\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source: H\u00e9rens Quality AM<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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What is particularly important, CEA portfolio provides a certain shield offering limited downside during the market turbulence, though sometimes part of the performance can be sacrificed when market return is accelerating.<\/p>\n

Risk characteristics for CEA winners appear to be rather attractive for more riskaverse investors: volatility of the portfolio is a bit lower that of the general market: 15% vs. 16%.<\/p>\n

CEA Winners in Baltic Countries<\/strong><\/p>\n

We select the best companies not only in developed Europe and global financial markets, but we also look at a very small stock market \u2013 Baltic equities, the total market cap of which just a bit below EUR 9 bn. In fact, Lithuania, Latvia and Estonia were the first countries where we launched Corporate Excellence Award in 2008. Our Research Center is located in Latvia, so we wanted to test the concept of the beauty contest evaluating listed companies in Baltic countries first. <\/p>\n

And average outperformance here looks even better, which is partially explained by certain degree of market\u2019s inefficiency. When comparing the performance of top 5 companies in Baltics to the regional benchmark, OMXBBGI, results clearly evidence about the consistent outperformance of the Baltic companies having superior fundamental and business quality characteristics (Fig.4). <\/p>\n

Figure 4: Top 5 Baltic companies based on Corporate Excellence Award methodology vs. Baltic OMXBBGI Index, 2018-2022, annual period starts on May 1 and ends on May 31<\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Source: H\u00e9rens Quality AM, Reuters<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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CEA Winners in Quality Portfolios<\/strong><\/p>\n

Several past and current winners of Corporate Excellence Award nicely fit the composition of our Quality regional and top portfolios. Though obviously not all the winners are represented in Quality stock portfolios because of valuation, liquidity, or regional constraints. However, we always welcome CEA winners in Quality portfolios to strengthen shareholder return, resilience and portfolios\u2019 fundamental characteristics. <\/p>\n

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<\/strong>This document has been prepared solely for information and advertising purposes and does not constitute a solicitation offer or recommendation to buy or sell any investment product or to engage in any other transactions.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Recognized country winners obviously have stellar fundamental characteristics, but does the market see and admire it, too? We have compared each country winner with the relevant regional equity benchmark. <\/p>\n","protected":false},"author":6,"featured_media":8155,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[37],"tags":[],"class_list":["post-8184","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-excellence-insights-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/posts\/8184","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/comments?post=8184"}],"version-history":[{"count":5,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/posts\/8184\/revisions"}],"predecessor-version":[{"id":8190,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/posts\/8184\/revisions\/8190"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/media\/8155"}],"wp:attachment":[{"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/media?parent=8184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/categories?post=8184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hqam.ch\/en\/wp-json\/wp\/v2\/tags?post=8184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}