Thijs Knaap on BNR about the growing gap between capital markets

Published on: 15 May 2024

The gap between the capital markets of the US and Europe is widening. Is it time for a single European stock market? Thijs Knaap, chief economist at APG, discussed this issue yesterday on the investor panel on BNR Nieuwsradio. He also talked about what made stock market legend Jim Simons, who passed away on May 10, so special.


The European capital market is falling further behind the American stock markets. “American companies play a role in this: they have performed exceptionally well. There is no European Apple or Google,” Knaap explains. “The success of these companies is also tied to the growth of the American economy. As an investor, you would have been crazy not to invest in the United States in recent years, as the highest returns were achieved there. It’s all understandable and has real consequences. If you look at the MSCI World Index, the stock index that many investors follow, the share of American companies in it has risen from half to 70 percent in recent years. So if you follow this index as an investor, a large portion of your money automatically goes to the United States.”

Is further consolidation of European stock markets the panacea for the growing gap with the Americans? Knaap draws a comparison with the supermarket. “If you have to do your shopping at the butcher and the greengrocer, you have to go through the whole shopping street, whereas the supermarket has everything in one place. If you want to trade on an exchange as an institutional investor, you have to deal with different forms, costs, and rules. So there is definitely room for improvement for the European stock exchanges.”

Jim Simons
The death of stock market legend Jim Simons was also discussed. Before Simons, trained as a mathematician, founded his hedge fund Renaissance Technologies in 1982, he worked for the American secret service, Knaap explains. As an opponent of the Vietnam War, he sought employment elsewhere and ended up in the financial world. And how. Medallion Fund, one of the funds of Renaissance Technologies, had the best track record on Wall Street for 30 years. “Between 1988 and 2018, they achieved an annual return of 66 percent before costs and 39 percent after costs. That’s almost otherworldly.” Simons managed to achieve such record returns thanks to mathematics, Knaap continues. “Simons and his colleagues were scientists and didn’t know much about the companies they invested in. A famous quote from him is that his computer sometimes advised him to sell or buy Chrysler shares. The computer did this even after the car company had long disappeared from the stock market. The computer only used pattern recognition, but that’s the art: the data provided insights that enabled fantastic returns.”

A bit of nuance is appropriate here, Knaap says. “In 1988, you could still beat the whole market with a PC because no one else was looking at the stock market that way. Now, things are different.” Additionally, such returns are only possible if you keep the fund relatively small. Warren Buffett, with his investment vehicle Berkshire Hathaway, will not match Simons’ returns, Knaap states. Another reason Simons’ hedge fund achieved such high returns was that they traded cross-asset. “Most hedge funds focus only on stocks or commodities, but at Medallion Fund, they also traded between, for example, stocks and bonds. That is riskier and more difficult, but it offers the chance for higher returns,” says Knaap.


Listen to the (Dutch) broadcast here, where Knaap and fellow panelist Simon van Veen from the Sustainable Dividends Value Fund also discussed the chip market and the position of the board of oil company Exxon.