The Remarkable Story of Indiana Companies
By Brad Ferguson at Halter Ferguson Financial
Colonel Eli Lilly and his family are well known in Indianapolis for creating tremendous wealth for their shareholders and also sharing their wealth with the people of Indiana. I would also like to shine the spotlight on other Indiana companies who have delivered meaningful investor returns to shareholders, while simultaneously giving back to Indiana communities—including rural communities. In fact, there are about 65 publicly traded companies with a market cap over $25 million. The graph below highlights the location of the headquarters for the top 50 (ranked by 2014 sales), but many of these companies have operations throughout the state, including rural communities.
Halter Ferguson Financial conducted a study of the stock performance of these companies and what we found was truly remarkable. We studied a portfolio of stocks that was equally weighted at the beginning of each period, and assumed that dividends are reinvested in the stock that issued the dividend. We only considered companies that had at least a $100 million market cap on Dec 31, 2015. While we certainly can’t claim this is a perfect study of the performance of Indiana companies, we do feel it is a representative study. We are clearly missing a handful of underperforming stocks, but we are also missing the companies that were acquired at high prices. Our findings indicate that Indiana companies have outperformed the Russell 2000 small cap benchmark ETF over every period that we measured performance!
What explains this remarkable performance? We attribute this outperformance to four factors.
1. It is well known that Indiana is a very cost effective place to live. We are ranked #15 in the country according to the Tax Foundation, and we rank #1 in the country for the cost of doing business according to CNBC.
2. Indiana companies are geographically well positioned. Indiana reaches 80% of the US population within one day’s drive, which is why so many companies, and increasingly e-commerce companies such as Amazon, have logistic operations and warehouses in Indiana. The state also facilitates this growth by working with businesses to expand highways, airports, the rail network and riverports.
3. The majority of companies in the Indiana are small, and smaller companies tend to receive less attention from Wall Street. Our view is that this actually helps businesses manage for the long-term, as Wall Street may place pressure on the management of companies to emphasize short-term results.
4. Perhaps most importantly, we believe Hoosier companies have historically done well because they care deeply about their local communities. If you are building companies that are going to grow over the generations, you need to establish a brand with a future workforce early on. Furthermore, you need these future employees to be healthy, well-educated and to have a stable home life. While our research related to Hoosier companies is ongoing, we have been able to find several examples of companies that provide their employees with paid time-off to volunteer, that match employee contributions to non-profit organizations, and that directly write significant checks to causes that benefit the local community.
Our view is that the true legacy of Colonel Eli Lilly might be the influence he has had on companies that are based in Indiana. While some US companies may view philanthropic giving as simply a charitable deduction, our view is that an investment in the community helps to foster employee loyalty and helps Indiana companies hone their competitive edge. For a grant-making organization with a globally diversified investment portfolio, an investment in a basket of Indiana companies offers the potential to increase overall investment performance, lower portfolio volatility, and impact Indiana communities.