During the past decade, American stocks have far outperformed shares in the rest of the world.
Much of this gap is due to Big Tech (Apple, Amazon, Microsoft, Google, Facebook). Without these five stocks, the chart of the S&P 500 looks more like the world index.
But even if we exclude Big Tech, America still outperforms Europe. It’s easy to see why. Take a look at the Euro Stoxx 50. That Eurozone index is dominated by financial and industrial companies and utilities. They have few opportunities for growth, low profit margins, and they face structural changes (negative interest rates, electric vehicles, renewable energy).
The U.S. on the other hand has plenty of innovative companies with huge total addressable markets (TAMs). They are often software-as-a-service (SaaS) firms, e.g. Adobe, Netflix, Salesforce, Square or Zoom. Others reinvent existing services, e.g. Carvana, Peloton, Teladoc, Uber, Wayfair or Zillow. Or they have world class products with a strong brand name, e.g. Nvidia or Tesla.
You can find such companies in other parts of the world, but they are rare. Examples include Adyen and ASML (Netherlands), Delivery Hero (Germany), LVMH (France), Shopify (Canada) and TSMC (Taiwan).
What did companies do with the money from the ECB?
Corporates used the attracted funds mostly to increase dividends, according to research by Karamfil Todorov.
Did QE ease financial conditions?
Yes. Karamfil Todorov found that the ECB’s Corporate Sector Purchase Programme (CSPP) “increased prices and liquidity of bonds eligible to be purchased substantially”1.
Can we trust central bank research on the effect of QE?
Central bank researchers face strong incentives to be positive on QE. Brian Fabo, Martina Jančoková, Elisabeth Kempf and Ľuboš Pástor found that “central bank papers report larger effects of QE on output and inﬂation. Central bankers are also more likely to report signiﬁcant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes.”
A report by Common Wealth found that some climate-themed funds invest in oil & gas companies such as ExxonMobil. More broadly, the largest holdings of climate funds were Big Tech and finance. Adrienne Buller, the author of the study, writes “what do these ostensibly climate-focused funds really contribute to combatting the climate crisis, reducing emissions or driving a rapid transition to low carbon economic activities? There is nothing in the specific labelling or remit of these funds that would require them to invest in the green economy, in financial instruments design to drive the transition of business models to lower carbon activities, or other similar investments.” (emphasis mine)
There are plenty of metrics by which providers assess climate risk. Given different methodologies and the complexity of estimating climate risk, there is some divergence in the metrics. However, Chiara Colesanti Senni and Julia Anna Bingler do find that “metrics tend to converge for companies that are most and least exposed to climate risk”.
Data and tools for monitoring climate change and financial assets:
During my research, I found a nice mathematical formula for the number of banks in a city. Details will follow later. How well the empirical data points fit the formula can be described with a statistical metric called “R-squared”. Here are some good explainers: