What keeps business leaders up at night?

In a recent global survey, CEOs rank creating more innovative cultures as their third biggest internal challenge for 2020. Creating new business models comes in second. And attracting and retaining top talent—a key driver of innovation—takes the top spot.

Even though innovation is so important, there’s little agreement—and lots of confusion—on how to measure it. That comes as no surprise, given the complexity of innovation. It is often very intangible.


But some tangible signs of innovation can be measured. Take intellectual property, for example, which receives protection from patents, trademarks and copyrights.

Those very markers turn out to be linked to superior stock market performance. The Conference Board, where I work, recently began publishing two “innovation indexes” that track the stock price performance of 120 global and 100 U.S. large public companies. The rankings are derived by applying a series of algorithms that quantify and rank a company’s innovation. We analyze patents, trademarks, and copyrights and the value generated from them. These indexes offer a novel tool to track and assess long-term outcomes of investments in innovation.

The results for both U.S. and global indexes clearly demonstrate that innovative firms perform better in the stock market than their competitors. Since innovation returns tend to pay off over the longer term, not every quarter sees the index outperform aggregate stock market indexes such as the Russell 1000 or MSCI ACWI. For example, in the last quarter of 2019 the U.S. innovation index rose 7 percent, while the Russell 1000 index of the U.S. market’s largest companies, rose almost 9 percent. However, over a longer period of six years from January 14, 2013 to the end of January 2020 this index grew 139.8 percent—faster than the 123.3 percent return of the Russell 1000. Cumulative return on investment in the global index is 183.8 percent, well above the global MSCI ACWI which returned 66.4 percent over the same period. On an ongoing basis, these firms invest in intangible assets, as evidenced by patent portfolios, and create value by, among other things, effectively commercializing and deploying innovations protected by those patents.


In the fourth quarter of 2019, investments in the companies in the U.S. innovation index collectively brought market returns of 7 percent—a significant jump from 1.6 percent in the third quarter. The prospect of a phase one trade deal between the U.S. and China helped the financial performance of many companies, especially in technology manufacturing. In addition, a relatively well-performing U.S. economy, fueled by consumer spending, a strong housing market and significant investment in intellectual property supported the stock performance of innovative companies.

The global index performed even more robustly, improving from a return of less than 1 percent in the third quarter to 8.6 percent in the final quarter of 2019. Perhaps because of the higher financial market volatility and uncertainty brought on by the trade war in 2019, the U.S. innovation alpha index lagged the broad stock indexes which gained almost 29 percent for the year. On the other hand, the global MSCI ACWI index gained 24 percent over the year.

Ranking the Most Innovative Companies–GE Tops the List 

In the U.S., the top five innovative companies (based on their index weights for Q1 2020) are General Electric, Microsoft, 3M, Apple and Abbott Laboratories.

Apple is the only Silicon Valley company in the top five this quarter, while no tech companies reside atop the global index. The top five global companies are Adidas, Bayer, BMW, General Electric and AstraZeneca.

What also may surprise some: General Electric, typically not seen these days as an exemplar of new economy innovation, takes the top spot in the U.S. index and ranks fourth globally. Few may consider GE as innovative as Apple, but according to M-CAM research (the company that developed the index’s underlying research), GE still holds more than 170,000 patents and is continuously filling new ones. Those patents give GE an advantage to gain a relatively more dominant place among its competitors.

So even well-established companies can still lead on the innovation front. And such trailblazers tend to perform better in the financial markets, over the long term, and remain well poised to take advantage of market conditions as long as they diligently invest in and manage their intellectual property portfolios. Back-testing studies confirm that these indexes consistently outperform their benchmark indexes in the long run. Over the last six years, the U.S. innovation index slightly outperformed the Russell 1000. And $1,000 invested in the global innovation alpha index on December 31, 2012 would have grown to $2,838 by January 30, 2020 while the same amount invested in MSCI ACWI would have grown to $1,664 dollars over the same period.

Investment in innovation produces long-term results. For our economy to continue to grow, we need companies to increase investment in innovation. As these results show, such investment pays for itself in the long run.

Ataman Ozyildirim is The Conference Board’s senior director of economics and chair of global research.

This story was originally published on Techonomy