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Jun 23, 2023

The week in IR: ESG funds lose momentum, small-cap market rebounds and Netflix eyes M&A

Our pick of stories from around the web that you might have missed this week

–  According to the Financial Times (paywall), funds designed as alternatives to ESG investments are losing sales momentum rapidly, raising questions about the category’s long-term viability. A report from Morningstar focusing on the US market showed the funds’ sales peaked in the third quarter of 2022, at $377 mn but have since plunged, hitting $183 mn in this year’s first quarter. This comes despite overall assets rising more than seven-fold in the year to March to $2.1 bn. ‘Although there’s been a lot of talk about anti-ESG funds, it’s not clear that they have staying power,’ the report’s authors wrote.

– According to CNN, beaten-down stocks of smaller companies are finally making a comeback, underscoring Wall Street’s newfound optimism. The S&P 600 small-cap index rebounded roughly 8 percent from its low in May and is on pace to notch its first winning month since January. Small-cap stocks are domestic bellwethers as smaller companies generate most of their revenue from US customers. They also have large exposure to financial stocks. While those stocks have stabilized since the banking turmoil earlier this year, their continued steadiness is necessary for a sustained market rally because healthy banks underline a healthy economy. Investors say recent gains in small caps are helping prop up the burgeoning bull market, even as a potential economic downturn draws near.

– Meanwhile, The Wrap reported via Business Insider that Netflix could be eyeing a big acquisition like Paramount or another studio, thanks in part to the big rise in its stock that could enable a pivot to growth through M&A. The report earlier this week noted that Netflix has made strategic purchases in the past, notably in animation – it bought Australian studio Animal Logic last year – and its games business, including its buys of Oxenfree maker Night School in 2021 and Spry Fox in 2022. It also bought the Roald Dahl Story Company in 2021, intending to use the author’s titles to deepen its original programming. But now, for the first time since its founding 25 years ago, Netflix is looking for M&A to play a bigger role, the report said.

– The failure of the FTX exchange has triggered a sharp regulatory crackdown on the crypto world, the FT reported. The SEC brought civil charges against the largest crypto exchanges in the world – Binance and Coinbase – for allegedly failing to register with the regulator as securities exchanges. But US crypto investors remain at risk in the absence of an adequate regulatory framework, particularly in the case of Binance, which has been accused by the SEC of co-mingling billions of dollars of customer funds. SEC chair Gary Gensler had the opportunity to establish a framework, but failed to act. As recently as May 2021, he admitted in Congressional testimony that the problem was that there was ‘no regulatory framework’ for crypto exchanges to register at the SEC. But in December 2022, immediately after FTX failed, Gensler reversed course, instead claiming that crypto exchanges should ‘come in and register’ with the SEC.

– European businesses in China are finding it harder to operate in the country, even after it has reopened since Covid-19, the EU Chamber of Commerce in China found in its latest member survey, released Wednesday, CNBC reported. Mainland China ended its stringent Covid controls in December and authorities pledged to support more business travel in and out of the country but an initial economic rebound has lost steam, while regulatory hurdles remain. ‘Zero-Covid has ended, but other headwinds will need to be addressed if China is to regain its attractiveness,’ the report said. Its annual business confidence survey found a large increase in companies saying they missed out on opportunities in mainland China due to restrictions on market access or regulatory barriers.

Staff Writers

The staff writers on IR magazine are from our team of highly experienced journalists.