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.
Cumulative Total Return (2006 – March 2025)
ACSI vs S&P 500 (S&P 500) vs S&P 500 Equal Weight (SPEWI)
From January 2006 through March 2025, the ACSI Leaders portfolio generated a cumulative return of 2,111% versus 558% for the S&P 500 and 502% for the S&P 500 Equal Weight Index (SPEWI), with corresponding annualized returns of 17.4% for the ACSI Leaders portfolio and 10.3% for the S&P 500 and 9.8% for the SPEWI.
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, leading 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, hitting a new all-time high in the first quarter of 2024.
In Q1 of 2025, the broader market Macro pressures associated with Debt/Trade/Tariff turbulence revealed some market leadership beyond the "Magnificent Seven" (AAPL, TSLA, NVDA, META, AMZN, MSFT, GOOGL). This was indicated by the S&P Equal Weight Index (-0.67%) outperforming the more concentrated S&P 500 (-4.27%), with a spread of 360 basis points. The ACSI Leader Portfolio (-2.19%) also showed continued outperformance, suggesting that in an environment expecting an indiscriminate increase in input costs (Tariffs etc.) it may be more difficult for players who compete “on price” and a return to a focus on satisfying customers will continue to gain in importance.
On a trailing twelve-month basis (3/31/2024 – 3/31/2025), the ACSI Leader Portfolio (+16.4%) outperformed both the S&P 500 (+8.2%) and the S&P Equal Weight Index (+4.6%) by 816 basis points and 1,180 basis points, respectively. Of the 816 basis points of outperformance vs the S&P 500, there were 285 bps of “Allocation Effect” – quantifying the relative benefit we received from being over/underweight individual sectors (E.g. overweight Communication Services, underweight Info Tech). These Sector based Head/Tail-winds are largely Macro based, more importantly for judging the efficacy of our signal is the 530 bps of “Selection Effect” – quantifying the outperformance of the individually selected high satisfaction companies vs their broader sector peers.
For more information on ACSI as a financial signal, please contact Josh Blechman [email protected].