Companies intangibles: Unique versus generic

PurposeIn the era of the knowledge economy intangibles are recognized by investors as pivotal value drivers. This paper proposes an intangibles-based tool for picking companies with value growth potential.Design/methodology/approachWe suggest a model to select companies that effectively use unique intangibles (in contrast to the generic intangibles). To test whether these results can be explained by skill we implement a bootstrap procedure. Companies that are able to use unique intangibles efficiently are combined in a portfolio.FindingsOnly 22% of companies have the skills to use unique intangibles, but all of them are characterized by the efficiency of their use. The created portfolio demonstrates a higher cumulative return, Sharpe ratio and lower drawdown than S&P500. We also find the increasing importance of intangibles for investors during the crisis.Research limitations/implicationsBoth the created portfolio and the benchmark (S&P 500 index) are analyzed without transaction costs. Also the benchmark construction is based on equal-weighted sum of company M/B ratios.Originality/valueWe take into account the quality of intangibles (efficiency of unique intangibles use) while previous research of portfolio forming methods is based on quantity of intangibles.