Industrials Family-owned business and 3 themes that matter: compounders, tech disruption and megatrend

We look at the question "Why do family-owned companies outperform?" Family-owned companies globally have had a strong track record in the past, but the 'theme' is not immune to the rise in large US tech firms that dominate world markets; nevertheless, the family-owned largecaps that UBS monitors have recently outperformed, while family-owned smallcaps have underperformed.

We had previously explored the risk of tech disruption; we now ask whether COVID19 is accelerating this trend. To isolate the impact of technology, we excluded tech names from our analysis, and found that performance over the past 10 years has been solid.

We have identified seven Megatrends and mapped their impact on to individual industries on a scale of 1 (very negative) to 5 (very positive). Using this approach on family-owned companies, annualised 10y returns have been 6% higher for largecaps with positive megatrends and 3% higher for smallcaps. Finally, ESG is one of the most relevant 'megatrends'; we mapped our list of family-owned stocks to our ESG sector postcard reports and proposed a simple methodology to review companies' ESG positioning. Our analysis suggests that our list of family companies shows an overall positive skew towards ESG-related risks and opportunities, except on governance.