Philip van Doorn

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July 31, 2017, 7:33 a.m. EDT

This fund strategist says there’s at least one way companies can survive Amazon’s onslaught

Customer satisfaction is a differentiator in some industries, says ACSI Funds’ Kevin Quigg

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By Philip van Doorn, MarketWatch


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Stock pickers tend to screen companies for metrics including price-to-earnings ratios, analysts’ earnings estimates and profit margins.

But there’s a simpler approach in this long period of technological transformation that is threatening industries from retail to banking: customer satisfaction.

See: Every time this happens, Amazon crushes another legacy retailer

The American Customer Satisfaction Core Alpha ETF /zigman2/quotes/203737528/composite ACSI -0.22%  comprises about 170 mostly large-cap stocks that are selected according to American Customer Satisfaction Index scores. Stocks are allocated so that each sector is weighted within 10%, up or down, of that sector’s market-capitalization weighting in the benchmark S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.05% .

As internet retail giant Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -1.58% expands into more businesses, pleasing customers may be the most important factor for companies looking to survive the onslaught.

When discussing fundamental stock research in an interview July 26, ACSI Funds chief strategist Kevin Quigg said financial results reported by companies “are in no way forward looking.” Measuring how people feel about companies “is a better forward indicator of future behavior and success,” he said.

Read: Amazon’s quarterly earnings plunge 77%

Before joining ACSI Funds a year ago, Quigg worked for State Street Corp. /zigman2/quotes/209758976/composite STT -1.20% , heading the SPDR ETFs’ global sales strategy, as well as its global capital markets and institutional ETF sales groups.  

The American Customer Satisfaction Index was developed in 1994 by researchers at the University of Michigan, led by Claes Fornell, working with the American Society for Quality in Milwaukee, and CFI Group in Ann Arbor, Mich. Fornell is now the Distinguished Donald C. Cook Emeritus Professor of Business at the university.

The index measures the level of customer satisfaction of about 300 companies in 43 industries doing business in the U.S., based on surveys of about 180,000 people. Fornell is chairman of ACSI Funds.

The American Customer Satisfaction Core Alpha ETF was launched in November, and MarketWatch’s Ryan Vlastelica described the fund at that time after interviewing ACSI Funds CEO Phil Bak.

Soon after the fund was established, Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.59%  was its largest holding, making up 3.4% of the portfolio, while Amazon accounted for only 0.4%. As of the stock market’s close July 26, Amazon was the biggest holding, representing 3.4% of the portfolio, with Apple second, at 3%, and Alphabet Inc.’s Class C shares /zigman2/quotes/205453964/composite GOOG -0.28% in third place at 2.1%.

Quigg said Amazon had climbed to the top of the list because of “a few alterations to the methodology to better align our industries with investment industry norms,” and to give more weighting to companies with the highest levels of customer satisfaction in their industries.

Immune to Amazon?

Quigg disagreed with some of the conclusions by Jefferies Equity Research analysts who said in a report last week that the decline in stock prices for various competitors of Amazon had created some bargains for investors.

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Nov. 13, 2019 2:36p
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