Family owned companies tend to achieve superior returns and higher profitability than companies with a fragmented shareholder structure, acc...

Family owned companies tend to achieve superior returns and higher profitability than companies with a fragmented shareholder structure, according to new research revealed by Credit Suisse.
This revelation has led to the creation of a new equity index of family influenced stocks - The Credit Suisse Family Index.

Credit Suisse analysts compared the performance of stocks with a significant family influence to those of corporations with a broad shareholder base, showing that ownership structure impacts both company and stock performance.

The research demonstrates that European stocks with a significant family influence have outperformed in their respective sectors since 1996.

On average, these companies outperformed by 8 per cent p.a. in Europe. Similar results were found in the US.

According to Lars Kalbreier, global head equities and alternatives research, family shareholders usually require a long-term strategic focus from their managers.

Since most families intend to pass their holdings on to their descendants, they have strong grounds to keep their holdings in good condition and their interests lean towards the longer term.

Unlike companies with a highly diversified shareholder base, companies with a strong family influence tend to focus less on the next quarterly results and can therefore also implement strategies that are earnings-accretive over a much longer time horizon.

Focusing on core business is a key asset of family companies, which tend to restrict involvement to a limited number of activities and focus on niche markets as part of their long-term strategic focus. This limits acquisitions, extensive use of leverage and trendy, short-lived strategies. Meanwhile, influential families usually limit their managers’ diversification endeavours in order to maintain control of the traditional business.

Mr Kalbreier told WealthBriefing that the next phase of the research would include family controlled companies in other regions of the world. This will be done in consultation with INSEAD but will not involve the two Swiss Business Schools known internationally for their work on family businesses - IMD and St. Gallen.

On the basis of its research, Credit Suisse plans to launch next week a Family Index for investors to capitalise on the superior performance of family influenced companies. To begin with, the SSFI index will comprise European and US stocks.

Credit Suisse will select using the HOLT model which is based on several key ratios aimed at ranking stocks according to three main criteria: valuation, operational performance and momentum.
When asked by WealthBriefing about the likelihood of Credit Suisse building an investment product on the family index, Mr Kalbreier said “ it was too early to tell”.