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Article Repost: The Marker: Dan Arieli's "Satisfied Employees" Fund: A return of 9% in two months

Prof. Dan Arieli, an expert in behavioral economics, has developed a model that tries to predict the success of companies according to employees' satisfaction. According to him, employee motivation has a huge impact on financial results. In April, the IBI Investment House launched a model-based mutual fund.



Prof. Dan Arieli is an expert on behavior. More specifically, he is an expert in behavioral economics - he examines how economic processes are influenced by human behavior. "A key component of motivation is good will, that is, the amount of work hours is not defined only by the salary you receive, but mainly by your desire to contribute to society," Arieli said in a conversation with TheMarker.


"When management shows you that you are a screw and is replaced by another screw, it undermines the motivation and quality of the product you are producing.

Arieli did not just leave the theoretical side of this approach, and he went out and checked the satisfaction of employees in various companies in the US He built a virtual investment portfolio of companies with higher employee satisfaction and examined the yields achieved against the S & P 500 index. Showed that the return on the same portfolio was 17% higher than the S & P 500.


"We checked the satisfaction of employees in different companies and examined the data against the S & P 500 index. Companies do not really treat employees as a factor for success, and most companies do not really invest in employee motivation," Arieli explained.


"The significance of our results is that employee motivation has a tremendous impact on the company's results, and I think that employees who stay with Teva, for example, have less motivation," he added.



Now Arieli has taken this theory and is trying to implement it in a trust fund that will follow his model. The IBI investment fund, called DA Model  - Based on Arieli's model, based on a pool of shares included in the MSCI World index and traded mainly in the S & P 500 and Russell 1000 indices.


The goal of the model is to build a portfolio of companies that show a high correlation between answers issued by company executives to answers issued by non-executives, and issues they found that could affect future stock performance such as communication, motivation and trust. "The model, as a strategy based on behavioral science, uses dedicated data on the relationships between employees (managers and non-managerial employees) and employers (selected public companies), using a wide range of parameters, including correlation, communications , Motivation, behavior, satisfaction and trust. "


The weight of the paper in the portfolio is held at an equal weight initially, subject to a liquidity test (the value of paper in the index is not more than 200% of the average daily turnover of that paper). The prospectus also states that the model may make adjustments at its discretion regarding the feasibility of integrating additional dedicated behavioral information. The rate of exposure of the Fund's assets to shares shall not exceed, in its absolute value, 120% of the net value of the Fund's assets. The fund was launched at the end of April and has since managed to yield a gross return (after management fees) of 9%.


Among the fund's major holdings are AXA Insurance, KKR Investment Company, American Express, Hasbero Toys, and Cake Cake Factory.


Arieli explained why he believes that companies do not really invest in employees : "The companies do not really do so because it's very hard to quantify the motivation, but we are able to quantify the data, but it's very difficult. Adding to the fact that one of the strongest people in a business company is the CFO, and he must make things measurable. He will find it difficult to quantify the significance of how many workers stayed up at night to improve the project, "Arieli said.


Arieli added that countries should adopt the happiness index as a guideline for public policy, as they did in Bhutan : " Countries should adopt the index, but companies also have to think differently about their human capital and ways to develop it." I gave the workers visas to choose a gift, And I asked them to choose something to study, I sent them to ten days of study of what they wanted, and the biggest expenditure was on a worker who went to Japan - and it cost less than $ 3,000 per person, but they spent a whole year dealing with what they did and what they learned. I work with 45 people, with 0% turnover. "

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