It's often said that innovative firms perform better than their more pedestrian competitors. But where's the proof? And if they do perform better, by how much?
Researchers from the USC Marshall Center for Global Innovation and Imperial College London think they've come up with answer in the shape of their Index of Innovative Companies - and they've used objective market data as the basis for their claims, rather than surveys.
Portfolios of top firms on the index appear to perform better than the S&P 500 in up markets and almost as well in down markets. Moreover, this superior performance comes without excessive risk.
For example, in the five years between 2004 and 2008, an annual paper investment of $10,000 in a portfolio of top 20 firms in the Index would have yielded a cumulative return some 46% higher than the S&P 500 for the same concurrent years. And for one-year-ahead performance, the increase in returns is 23% for the top 20 portfolio over the S&P 500.
According to the Marshall Center's Director, Professor Gerard Tellis, "the results suggest that innovation is a valid criterion of portfolio formation, just as the current criteria of size, value, growth, and price."
