The first, value creators, includes companies that earn a return on invested capital that is at least 2% greater than the cost of capital, the second, value zeros, includes companies that earn within 2% (within my estimation error) of their cost of capital in either direction and the third, value destroyers, that earn a return on invested capital that is 2% lower than the cost of capital or worse. Second, to measure the capital that a company has invested in its existing investments, you often have begin with what is shown as capital invested in a balance sheet, implicitly assuming that book value is a good proxy for capital invested. Put simply, it would be unfair of me to tar a young company like Tesla as a failure because it has a negative return on invested capital, and dangerous for me to view HP as a company that has made good investments, because it has a high ROIC, since is only due to the fact that it has written off almost $16 billion of mistakes, reducing its invested capital and inflating its ROIC. Among the best performing sectors are many with low capital intensity and service businesses, though tobacco tops the list with the highest return spread, partly because the large buybacks/dividends in the sector have shrunk the capital invested in the sector.
In general, especially when comparing large numbers of boutiques s across many sectors, the capital comparison is a more reliable one than the equity comparison. In 2016, passive investing accounted for approximately 40% of all institutional money in the equity market, more than doubling its share since 2005. Since 2008, the flight away from active investing has accelerated and the fund flows to active and passive investing during the last decade tell the story. In fact, the mutual fund industry seems to have realized that they face an existential threat not just to their growth but to their very existence and many of them are responding by cutting fees and offering passive investment choices. When Jack Bogle started the Vanguard 500 Index fund in 1975, I am sure that even he could not have foreseen how successful it would become in changing the way we invest. Today, you can put together a portfolio composed of index funds and ETFs to create any market exposure that you want in stocks, bonds or commodities. The Shanghai Composite Index was flat after trade data showed that Chinese exports rose nearly 10% in September, reflecting a continuing recovery.