The Importance of Intangible Assets

July 06, 2021 EDT

Despite recent turbulence in the market, top blue-chip companies like Amazon, Apple, and Tesla have shown tremendous growth over the past decade, exponentially increasing their value and hence their stock prices.

Anyone who’s invested in these companies just five years ago should be sitting comfortably with their portfolios.


(Source – Yahoo Finance)

 

Past performance does not guarantee future results. The performance discussion of individual companies is for informational purposes only and does not represent the Fund. For NVQ top ten holdings, click here.

These companies share a few things in common. For one, they all possess a myriad of intellectual properties, like patents and copyrights, exceptional leadership and expertise, brand power, and a cult-like customer base.

Is there just one phrase that sums their commonalities up? Yes – Intangible Assets.

Significant intangible asset categories that these firms enjoy and exploit include intellectual properties, B2B rights, brand power, goodwill, data, non-competition agreements, business relationships, and public rights. Most people undermine the importance of these advantages.

As of September 2020, the value of intangible assets for the top 10 companies in the world was $10.8 trillion, according to the 2020 Brand Finance Global Intangible Finance Tracker. Given the technological advancements within the business paradigm, companies’ proportion of intangible assets are increasing substantially. In 1975, intangible assets represented only 14% of S&P 500 companies’ assets. In 2018, that percentage was at least 84%, according to Aon’s report on Intangible Assets Strategy, Capital Markets and Risk Management.

Value investors who have picked up on this trend are striving to analyze rising firms’ intangible assets and their prospective growth to invest in the next Amazon or Tesla, for the right reasons, as the significance of intangible assets seem undeniable. However, the results for value investing have been poor, to say the least. Beginning in the 1980’s, and especially after the 2008 financial crisis, value investing has been returning dull or negative results, largely due to inaccurate measurements of intangible assets.

Hence, some investors have been relying upon AI to calculate companies’ intangible assets and invest accordingly. Through machine learning, artificial intelligence can pick up important data in a plethora of fields and tries to produce accurate projections for stocks’ growth potential. The Qraft AI-Enhanced U.S. Next Value ETF (NYSE: NVQ) is an actively-managed ETF that invests in value stocks, depending on their intangibles. The AI model, by gauging intangible assets to in efforts to correct the traditional value metrics, is up 22.67% since its inception on 12/02/20 on the New York Stock Exchange until 3/31/21.

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Annual Expense Ratio is 0.75%.

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Investing involves risk, including loss of principal. The Funds are subject to numerous risks including but not limited to: Equity Risk, Sector Risk, Large Cap Risk, Management Risk, and Trading Risk. The Funds rely heavily on a proprietary artificial intelligence selection model as well as data and information supplied by third parties that are utilized by such model. To the extent the model does not perform as designed or as intended, the Fund’s strategy may not be successfully implemented and the Funds may lose value. Additionally, the funds are non-diversified, which means that they may invest more of their assets in the securities of a single issuer or a smaller number of issuers than if they were a diversified fund. As a result, each Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a smaller number of issuers than a fund that invests more widely. A new or smaller fund's performance may not represent how the fund is expected to or may perform in the long term if and when it becomes larger and has fully implemented its investment strategies. Read the prospectus for additional details regarding risks.


QRAFT AI-Enhanced U.S. Large Cap ETF: Companies in the health care sector are subject to extensive government regulation and their profitability can be significantly affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure (including price discounting), limited product lines and an increased emphasis on the delivery of health care through outpatient services.

QRAFT AI-Enhanced U.S. Large Cap Momentum ETF: The Fund is subject to the risk that market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Fund’s investments. The value of stocks of technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, the loss of patent, copyright and trademark protections, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market.

QRAFT AI-Enhanced US High Dividend ETF: Securities that pay dividends, as a group, may be out of favor with the market and underperform the overall equity market or stocks of companies that do not pay dividends. In addition, changes in the dividend policies of the companies held by the Fund or the capital resources available for such company’s dividend payments may adversely affect the Fund. In the event a company reduces or eliminates its dividend, the Fund may not only lose the dividend payout but the stock price of the company may also fall.

QRAFT AI-Enhanced U.S. Next Value ETF: The value approach to investing involves the risk that stocks may remain undervalued, undervaluation may become more severe, or perceived undervaluation may actually represent intrinsic value. Value stocks may underperform the overall equity market while the market concentrates on growth stocks. The small- and mid-capitalization companies in which the Fund invests may be more vulnerable to adverse business or economic evens than larger, more established companies, and may underperform other segments of the market or the equity market as a whole. Securities of small- and mid-capitalization companies generally trade in lower volumes, are often more vulnerable to market volatility, and are subject to greater and more unpredictable price changes than larger capitalization stocks or the stock market as a whole.

Alpha – Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index.

AutoML – Short for Automated Machine Learning, AutoML is the automation of the machine learning process to make machine learning jobs simpler, easier, and faster.

Kirin API - Developed by Qraft’s data scientists, integrates multiple vendors to provide both macroeconomic and company fundamentals with the correct point-in-time data.