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Trends in a Post Brexit Europe

Susan Hayes Culleton • May 25, 2021

Trends in a Post Brexit Europe

Thank you kindly to the Institute of Banking for inviting me to speak about “Trends in a Post Brexit Europe” whereby I discussed:
*ESG trends 
*Smart beta indices
*Financial technologies
*Examining all of these in terms of negative interest rates. 

- how #ESG investing is different

- PwC posits that “ESG funds could claim a 57% market share by 2025”

- European ETFs closed 2020 by passing the €1 trillion AUM mark

- McKinsey & Company put forward that gender diverse executive teams and boards outperform on profitability

- there are a range of European ETFs passively tracking gender equality including Lyxor Asset Management’s “ELLE” and iShare’s “OPEN”

- “Central Bank Digital Currencies” highlight how #crypto is moving mainstream

- zero-cost brokerage needs education as well as Mifid regulation

- Worldpay reports there has been a 32% reduction in the use of cash since 2019

- negative interest rates has pushed investors up the risk curve

- the rise in venture capital can point to the decline in the number of stock market listings.

You can watch my video summary below from my Positive Economist YouTube Channel.


First, it is important to clarify that ESG is a form of measurement. ESG investing is investing according to these three metrics:
  
Environmental
Social 
Governance

Traditionally, ESG investing is motivated by one's own passions, but typically doesn’t lead to high returns. However, the market has begun to shift. Companies in traditional indexes are also in ESG indexes, with the understanding that in order to reach profit maximization they must be good to the people and the planet.

Younger generations are more inclined to use their income to express themselves and their values, making ESG investing more favorable in their eyes. PwC anticipates ESG investing to outpace traditional investing by 2025, predicting that there will be more money invested into ESG funds rather than traditional funds. Particularly, there is more money being invested in European ESG exchange traded fund’s (ETF) proportionally than the US.

In addition to ESG’s, I also discussed smart beta indices. Smart beta indices is an enhanced strategy to track indexes to outperform a traditional index. Maintaining the theme of ESG, I discussed an ESG ETF, based on gender diversity, that tracks a passive index. I raised the question of if gender diverse companies make more money? I looked at this question from a financial point of view in two ways:



  1. Does gender diversity lead to a healthier bottom line?
  2. Does that translate to the stock price?


First, a variety of studies have proven that gender diverse companies do in fact make more money. McKinsey & Company ran a global study consisting of more than 1000 companies in 15 countries and found that organizations in the top quartile of gender diversity were more likely to outperform on profitability, 25% more likely for gender diverse executive teams, and 28% more likely for gender diverse boards.


I then looked at a graph comparing the SHE ETF with the S&P 500 to compare trends in returns between the two over the years. My comparison showed very little difference between the two, and therefore you are not fundamentally at a loss for investing in an ETF like this instead of a traditional ETF. European ETFs tracking similar themes are ELLE, GENDER, and OPEN.


I closed out the discussion by talking about financial technology. I spent time discussing the trends in cryptocurrencies and their movement to become more mainstream. Secondly, I discussed Wall Street bets and the current events surrounding their dividends and earnings. A ⅓ decline in cash spending since the pandemic has enhanced trackability through digital spending. Lastly, I spoke about the decline in stock market listings and an increase of company buy-backs.


ESG investing is the perfect way to make money on investments that matter to you. If you are a current investor, or looking to start your investment portfolio, ESG companies are a great place to start.


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