Deep waves: the quiet undertow of intangible assets

Our definition of assets and their economic value has been changing over time. In the 20th century, machines, factories, and transportation were the assets on a company’s balance sheet. Today, value is dominated by “intangible” assets. Brands, technologies, patents, copyrights, synergies, and business models determine the lion’s share of company worth. At this point, 90% of the capitalization of the S&P 500 Index is accounted for by intangibles,¹ a huge jump from 36% in 1985. This paper builds on the technological innovation and taxation themes presented in Deep Water Waves, a paper² published by the Franklin Templeton Investment Institute, to explore the definition of intangible assets and draws conclusions on the implications for investors. Further, the paper dovetails with the Investment Institute’s Franklin Templeton Thinks Equity Markets piece, Growth or value? For active managers, it can be both.³ All things considered, the evolving treatment of intangible assets may be one of the most impactful trends in the global economy, making them impossible to ignore.