Global X, begun trading a new Founder-Run Companies ETF, the Global X Founder-Run Companies ETF (Bats: BOSS), on Wednesday, February 15, 2017. Here is a synopsis of the new ETF:
|Symbol: BOSS||Exchange: BATS|
|Name: Global X Founder-Run Companies ETF||Net Expense Ratio: 0.65%|
The Global X Founder-Run Companies ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive U.S. Founder-Run Companies Index.
The Solactive U.S. Founder-Run Companies Index is designed to provide exposure to U.S. companies in which a founder or co-founder of the company is serving as the Chief Executive Officer of the company (Founder-Run Companies), as determined by Solactive AG, the provider of the Underlying Index (Index Provider).
The starting universe of companies eligible for inclusion in the Underlying Index is the Solactive U.S. Broad Market Index. From this initial universe, the Index Provider identifies Founder-Run Companies using company-level data, and ranks these Founder-Run Companies by market capitalization. Founder-Run Companies are then screened for liquidity to determine eligibility for inclusion in the Underlying Index. As of the respective selection date, new constituents must have a minimum 6-month average daily traded value of $5 million to be eligible for inclusion, while existing constituents must have a minimum 6-month average daily traded value of $4 million to remain in the Underlying Index. If more than 100 Founder-Run Companies are eligible for inclusion based on the liquidity criteria, the top 100 companies by market capitalization are selected for inclusion in the Underlying Index. If fewer than 100 Founder-Run Companies are eligible for inclusion based on the liquidity criteria, the companies that meet the liquidity criteria will comprise the constituents of the Underlying Index. The Underlying Index is equal-weighted and rebalanced annually.
The Underlying Index may include large- or mid-capitalization companies. As of January 1, 2017, the Underlying Index had 100 constituents. The three largest sectors represented in the Underlying Index as of January 1, 2017, were Information Technology, Financials and Healthcare.
Index Top Holdings (02/02/17):
|Seattle Genetics Inc||1.63%|
|Ubiquiti Networks Inc||1.48%|
|Veeva Systems Inc||1.41%|
|Oasis Petroleum Inc||1.36%|
|Pra Group Inc||1.34%|
|United Therapeutics Corp||1.33%|
Index Industry Breakdown (02/02/17):
BOSS Home Page
Here is a piece from Global X fund’s introduction note:
‘What differentiates founder-run companies from the rest of the market? We believe it boils down to three components: ownership, innovation, and culture.
1. Ownership: Aligning compensation and incentives for the long-term
Founder/CEOs tend to have large equity stakes in their business which can represent a substantial portion of their personal wealth. In fact, we found that founder/CEOs had 10 times higher ownership in their companies than the average S&P 500 CEO. This significant financial investment, combined with an intense emotional connection with the company that they founded and nourished, often results in different incentives for founder/CEOs when compared to “professional
CEOs” who join companies at a later stage of a company’s life. In research on founder-led companies, venture capital firm Andreessen Horowitz writes:
“Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant… Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance.”
When Founder/CEOs take a “long view” of their companies, it tends to align their incentives more closely with other shareholders. For example, the average annual compensation for founder/CEOs is 32% less than that of the average S&P 500 CEO, as founders understand that maximizing their salary could come at the expense of deploying cash to fund long term growth opportunities, and thus hurt their equity value over the long term. In addition, these CEOs are
careful to not take on excessive debt, as bankruptcy would wipe out the value of their equity stake. As a result, founder-run companies exhibit 52% lower debt-to-equity ratios than the S&P 500 as a whole.4 Overall, we believe this is a positive for long-term investors, as their aspirations for sustainable growth closely aligns with the founder’s goals and incentives.
2. Innovation: Patents and the agility to pivot
By nature, founders are innovative and entrepreneurial, as these attributes initially led them to form and grow successful businesses. But a key question is: “Are founders able to continue to instill an innovative culture in companies with hundreds or thousands of employees?” A recent paper from professors at Purdue University sought to answer this question and discovered that founder-run companies indeed exhibit higher levels of innovation. For one, these companies generate 31% more patents than the average company in the S&P 500, demonstrating a strong commitment to developing new products and technologies. They also found that founder/CEOs “are more likely to take their firms in a new technological direction,” representing a unique ability to dramatically pivot their businesses in order to remain on the cutting edge.5 The fact that innovation remains a key aspect of founder-run companies can help fuel these companies’ long-term growth and avoid falling behind new challengers even as they mature into larger corporations.
3. Culture: Lifting up employees and customers
The third important aspect of founder-run companies is the existence of meaningful cultural traits which emanate from the founder and can be found across the organization. Studies led by Bain and Company found that this commonly manifests as the following three traits:
a.Insurgency: the mindset that the company is “waging war on industry norms on behalf of underserved customers”
b. Front line obsession: where employees exhibit “a love of the details and a culture that makes heroes of those at the front line of the business and gives them power”
c. Owner’s mindset: “dialing up speed to act and taking personal responsibility for risk and for cost”
Taken together, we believe these three cultural traits are a significant advantage for founder-run companies, as they enable a company to be more nimble, purposeful, and instinctive.’