Sustainable investments are the new trend, Choppy week on the stock markets, Investors' favor shifts

Chart of the week

The chart shows the flow of money into index funds (ETFs), from market leader iShares in the first through fourth quarters of 2021. In the first and second quarters, more money was still flowing into traditional ETFs, but since the middle of the year, almost all new investments have been flowing into ETFs that invest only in sustainable companies.

Why this matters:

Sustainable investing is the new trend. Inflows into ETFs from market leader iShares paint a clear picture. Investors are increasingly focusing on sustainable companies. ESG stands for Environmental, Social and Governance. It describes companies that care about the environment, their employees and all stakeholders, and follow all legal and compliance rules. Therefore, when choosing which stocks to buy, it is important to look at the ESG ratings of the companies.

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You would think that following legal and compliance rules would be a given for all companies. The headlines of the last weeks show a different picture. For example, Credit Suisse is accused of having laundered 55 million in drug money, it increases its provisions for legal cases to 500 million and the bank's president of the board has to leave his post when it becomes known that he flouted all Covid rules (this was probably not the main reason for his dismissal but the straw that broke the camel's back). Since 2014, Credit Suisse has had to pay $6 billion in fines. No one wants to invest in such companies today.

Choppy week on the stock markets

The stock markets started the new week well, but then could not maintain the gains of last week. On Monday after the close of the stock market, the new unemployment figures were published. Again, more new jobs were created than expected, which is a good sign of a well-performing economy, BUT worries are the rising wage inflation. Compared to last year, wages in the US have increased by 5.5%. This is much more than most analysts expected. Regular readers of our blog are not surprised by this. We have been warning about this development for weeks.

The chart shows that also in the current earnings season more companies exceeded expectations than the average of the last 15 years. However, the number was less than in the last 2 years. So, it's not surprising then that it was mainly the poor results that were bandied about in the press.

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Amazon first slumped almost 8% before the earnings figures were announced and recovered the next day with +15%. The reason was because profit almost doubled but operating profit halved. Investors did not know how to interpret this at first. The jump in profits came from the investment in the company Rivian, through which the group profited greatly when it went public in November. Amazon had warned of the lower operating profit weeks ago. The reason was higher wages and problems with supply chains.

Meta, as Facebook is now called, plummeted by almost 28% after the announcement of the earnings results! The amazing thing about it. All statements of the management were already known, only the fact that all together at a press conference were mentioned has finally opened the eyes of investors. That the competition like TikTok is growing and Facebook has not been growing in the US and Europe for months, or that Zuckerberg is now subordinating everything to the meta-universe and planning big investments, had been in the newspapers for weeks. Why the analysts of the large and renowned firms such as Goldman Sachs or JP Morgan have not already reduced the price targets for weeks is incomprehensible.

Both examples show, however, how uncertain and at a loss many investors are as to how they should assess the future of the much-loved growth stocks of the last two years.

Google shows that it can be done differently. The share rose by 10% after the announcement of the new figures. Good quality stocks in the growth sector are still in demand.

Investors' favor shifts

The two charts show in which index products of the market leader iShares money has flowed in or been withdrawn in the last 8 weeks.

In terms of factors, value (value stocks) is the clear winner. In the sectors, therefore, logically the financial sector, the energy sector and consumer staples, which are considered the most important value sectors.