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).
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:
“In Europe, the relative underperformance of value [stocks] versus growth has not been as sustained since the early 1980’s. In the US, according to research by O’Shaughnessy Asset Management, investors have to go back to 1926-1941 to find a comparable period of sustained relative performance.”
That’s from Inflection Point, a blog post in which Marc Rubinstein takes a long term look at the valuation of stocks and the impact of technology on markets and the economy. The article has a lot of references.
Update: Chris Meredith of O’Shaughnessy Asset Management talked about his research on Odd Lots.
You’ll see that the forms are pretty vague when it comes to point IV – Financial interests. Board members should name “Any financial interests holdings in companies/firms listed on a stock exchange”.
Some members have included equity funds and bonds under this item, although one could argue if that’s really required.
However, the declarations of interest do contain some remarkable info:
German board members Sabine Lautenschlager-Peiter and Joachim Wuermeling own co-operative shares in banks. The value of these holdings is trivial.
Ed Sibley owns some shares in Bank of Ireland. Mr. Sibley adds: “These are the remnants from a share ownership scheme from when I worked for Bank of Ireland (until 2008). They are worth less than €500, and I am in the process of getting rid of them.”
The spouse/partner of Vytautas Valvonis works at the Lithuanian branch of Dankse Bank.
Several board members (Benoît Cœuré, Tom Dechaene, Yves Mersch, Gaston Reinesch, Vitas Vasiliauskas, Claude Wampach) teach at universities (see item II – private activities). The earnings from these professorships are trivial.
Mr. Wampach owns Turkish lira denominated bonds issued by the European Investment Bank. Let’s hope he hedged the currency risk 😉
The financial interests of board members Margarita Delgado (Spain), Catherine Galea (Malta) and Andreas Ittner (Austria) contain only securities from their home countries.
Constantinos Herodotou (Cyprus), Madis Müller (Estonia) and Pierre Wunsch (Belgium) have the most diversified investment portfolios – Mr. Müller even owns a gold ETF. They should teach their colleagues about the importance of diversification!