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Listed family businesses and investment groups typically perform better when markets fall – but not now

Numerous studies show the shares of listed family businesses and investment groups typically outperform stock market indices when markets are weak and underperform when markets are strong. But that’s not happening so far in the current cycle. 

Family Capital has written about the robustness of listed and non-listed family businesses in times of economic downturn here, here, and here. Typically, the reasons given why family businesses outperform when times are tough are their lack of debt, long-term outlooks, and commitment to all of their stakeholders. All useful when economies and stock markets tank. 

So as major economies look to be heading towards recession and stock markets fall, this should be happening again, but there is some evidence it isn’t.

Family Capital looked at the share performance of six listed family-owned investment/holding groups – Exor, Kinnevik, Sofina, Investor, Cannae Holdings, and G K Goh Holdings. Year-to-date, except for Investor, they have underperformed their nation’s main stock market index (FTSE MIB, OMX Stockholm 30, BEL20, S&P 500, and SGX). For Kinnevik, G K Goh and Sofina, the underperformance was by 20% or more. Investor just slightly outperformed the OMX. 

The trend is similar for family business indices. The DaxPlus Family 30 Index, which measures the share performance of the 30 biggest and most liquid German family businesses, has fallen by 26% since the beginning of the year, compared with 12.8% of the main German stock market index, the DAX. The Euronext Family Business Index, which comprises 90 listed family-owned companies in the Euronext sphere, underperformed the FTSE 100 and CAC 40 year-to-date, but did better against the Euronext overall index. 

These are early and fleeting indicators, so not too much can be interpreted from them. But, interestingly, going into an economic and stock market downturn, investors aren’t necessarily parking their money in listed family-owned groups, despite the longevity of many of these groups and what has happened in past downturns. 

 

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