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ACSI® as a Financial Indicator

Companies with high levels of customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), typically do very well in the stock market.

Companies with high levels of customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), typically do very well in the stock market. This is because they tend to have strong customer loyalty, which, in turn, has exponential positive effects on profit and revenue growth. A stock portfolio of the top scoring 30-35 ACSI companies in their respective industries, weighted by customer satisfaction elasticity to customer retention, reveals something extraordinary: A reversal of both the law of diminishing returns and the notion of high risk/high return. Accordingly, investments in the top ACSI companies tend to produce above market returns and lower risk.

ACSI vs SP500 _ Jan 2024r

From January 2006 through January 2024, the ACSI Leaders portfolio generated a cumulative return of 1,703% versus 459% for the S&P 500 and 554% for the Consumer Discretionary sector, with corresponding annualized returns of 17.53% for the ACSI Leaders portfolio and 9.90% for the S&P 500.

Beginning in 2020 as a result of the global pandemic, there were supply constraints, labor shortages, and inflation, followed by a host of market anomalies. These issues affected not only the stock market but the economy at large. Inflation, in addition to supply constraints and labor shortages, led to an environment where consumer demand exceeded supply in many markets. This took place during a period when customer satisfaction declined substantially, with the national ACSI score dropping by a record amount from the first quarter of 2018 to the second quarter of 2022. When demand exceeds supply, there is less competition and customer satisfaction becomes less critical. Since the middle of 2022, partly due to lower buyer expectations, customer satisfaction has rebounded, rising to a new all-time high in the fourth quarter of 2023.

Thus far, however, the positive market returns in 2024 have been driven by a subset of very large companies and sectors not included in the ACSI. The absence of these sectors in the portfolio accounts for virtually all the ACSI’s lower-than-usual returns over the past two years. For instance, in 2022, 100% of ACSI’s relative underperformance to the S&P (-20.96% vs. -18.14%) was caused by the Energy sector, which is not included in the portfolio. A more appropriate benchmark would be the Consumer Discretionary Select Sector (XLY), ACSI’s largest sector exposure, which declined by 11% compared to a decline of 4% for the ACSI Leaders portfolio for the 2021-2023 period.

Despite the rise in customer satisfaction, however, not all market anomalies have evaporated. Nevertheless, for the 2021-2023 time period, the ACSI leaders outperformed Financials (+49.6% vs. +26.2%), Consumer Staples (+52.9% vs. +30.1%), Information Technology (+48.6% vs. -36.7%), and Utilities (+32.2% vs. +25.2%).

For more information on ACSI as a financial signal, please contact Josh Blechman [email protected].



*The excess return provided from a portfolio of customer satisfaction leaders can easily be verified using publicly available ACSI data. 

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