Doing well by doing good? Employee satisfaction update

Doing well by doing good? Employee satisfaction update

February 27, 2012 Research Insights
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(Last Updated On: May 7, 2014)

A while ago we highlighted a very interesting paper by Alex Edmans:

http://blog.alphaarchitect.com/2011/04/satisfying-employees-a-satisfying-investment-strategy/

Alex has published a version of the paper that looks at the 1984 -2009 paper in the Journal of Financial Economics:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=985735

He has another version which looks at the 1984-2005 period:

http://finance.wharton.upenn.edu/~rlwctr/papers/0716.pdf

Recently, a group of my highly motivated Drexel students did an independent backtest of the returns for the employee satisfaction strategy from February 2006 through February 2012. An “out of sample” independent verification study, if you will.

As a reminder, the strategy works as follows:

  1. Identify the 100 best companies to work for at http://money.cnn.com/magazines/fortune/bestcompanies/2011/index.html
  2. Go long firms with high employee satisfaction.
  3. Outperform.

There are four ways of investing in the strategy:

  • p1. Rebalance the portfolio across the list of the best companies to work for.
  • p2. Hold the original best companies to work for on 2006 throughout the period.
  • p3. Add new companies on updated list, but don’t drop companies that appeared on previous lists.
  • p4. Include only companies that were once on the list, but were dropped in subsequent periods.

Here are the results for the total return from  Feb 2006 to Feb 2012:

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

Wow, not too bad. The baseline portfolio of high employee satisfaction firms outperformed the S&P 500.

Here are the list of tickers for the 2011 portfolio to give you a flavor for the type of names in the book.

ADBE
AFL
AMZN
ARO
AXP
BBW
BRCD
CHK
CPT
CRM
CSCO
DRI
DVN
DWA
EOG
FDS
GIS
GOOG
GS
HAS
INTC
INTU
JWN
KMX
MAR
MAT
MORN
MSFT
MW
NATI
NS
NTAP
NVO
QCOM
RAX
SBUX
SJM
SYK
UMPQ
WFM

 


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.