Credit Suisse today announced the launch of an index targeting family-owned companies.

The firm reports that its research revealed that family owned companies demonstrate superior performance. “In the long term, they tend to achieve superior returns and higher profitability than companies with a fragmented shareholder structure,” it says.

Credit Suisse analysts compared the performance of stocks with a significant family influence to those of corporations with a broad shareholder base, revealing that ownership structure impacts both company and stock performance.

“At the turn of the last century, family-owned companies spearheaded industrial development in Europe and the United States. However, in the second half of the 20th century, this model was challenged and increasingly gave way to a model of widely dispersed shareholders. Recent evidence suggests that companies, in which the founding family still has a significant interest, tend to outperform companies with a more diversified shareholder base,” it adds.

According to the research, European Stocks with a ‘Significant Family Influence’ have outperformed in their respective sectors since 1996. On average, the SSFIs outperformed by 8% per year in Europe. Similar results can be observed in the US, it says.

Three key characteristics of SSFIs have been identified as the grounds for this outperformance: longer-term management focus, better alignment of management and shareholder interests, and focus on core activities.

It also notes that there are strong similarities between SSFIs and private equity. “The way SSFI management and private equity managers run their companies are comparable,” it says. “The similarities between SSFIs and private equity funds help to explain the strong outperformance of both investments versus widely held stocks. SSFIs have an additional benefit versus private equity, namely liquidity.”

On the basis of its research, Credit Suisse is launching a Family Index for investors to capitalize on the superior performance of SSFIs. This is the first international index of SSFI (comprises U.S. and European stocks), and also short-lists the best stocks from the SSFI universe according to Credit Suisse’s valuation methodology. That methodology ranks stocks according to three main criteria: valuation, operational performance and momentum. This screening process is repeated twice per year and the index is rebalanced every six months following the screening.