How would you decide which companies to invest in? Past performance,name of the company, interesting prospectus? According to Rory Sutherland that is like assessing the road ahead by looking in the rear view mirror.
In 2022 a fund was created in the US called The Harbor Human Capital Factor US Large Cap ETF (ticker: HAPI). Rather than selecting companies purely on financial ratios, it uses proprietary Human Capital scores developed by Irrational Capital, which analyse employee satisfaction, corporate culture, innovation, leadership quality and workplace effectiveness. The thinking is companies with stronger employee engagement and better “human capital” management produce superior long term shareholder returns.
And the results? Since launch, HAPI has marginally outperformed the S&P 500 on an annualised basis,25.7% vs 24.7%. Of course that is not a massive gain, and it should be noted that there is a disproportionate number of companies based in tech industries. However, the take away appears to be, companies with highly engaged employees grow their share price.
How are you engaging your staff?