Europe is back in demand – meet the funds out in front

Europe has captured investors’ attention over the past year, thanks to a strong equity market and people looking for an alternative to sky-high valuations in the long-favoured US tech space.

Since January 2025, European markets in general have delivered better returns than those in the US. Comparing the Stoxx Europe 600 – the broad measure of the European equity market – to the tech-heavy Nasdaq 100 and S&P 500, the former has significantly beaten the US indices, making 23% versus 10% and 9%, respectively, when looking at performance in pounds sterling.

The next chart shows the performance over a longer period. While Europe is behind the US in performance terms, you can see how it is playing catch up over the past year.

What’s changed in Europe?

There are several major drivers behind the inflows. Europe’s economy has enjoyed positive headlines around inflation and interest rates, with the former declining thanks to energy costs coming down.

Eurozone inflation is currently at a 16-month low of 1.7%, and this downward trend has allowed the European Central Bank to hold interest rates at 2%, well below its US and UK counterparts. At the same time, the bloc has loosened its fiscal policies, led by Germany which plans to spend significant sums on infrastructure and defence.

Valuation has been a key factor

From a stock market perspective, the big kicker has been the valuation diversification opportunity from the US.

While US tech stocks have remained popular with certain investors amid the ongoing AI trade, concerns of a bubble at the end of last year prompted many people to seek out more ‘reasonably’ priced companies.

Increased volatility stemming from the White House has also had a huge impact, with the broader moves out of the US and into Europe kicking off after Donald Trump’s now infamous ‘Liberation Day’ levies caused the sharpest one-day market falls since the pandemic.

While the main US markets have since recovered, the tariff event caused people to seek protection from the Trump-risk factor. Financial markets have just had to digest another twist in the Trump-tariff saga with the president putting out a new global tax rate in retaliation to the US Supreme Court's ruling that those initial April levies were illegal.

Top-performing funds

As these events capture investors’ attention, it’s worth looking into which funds have done well across various market cycles in Europe.

Nineteen European funds have delivered top quartile total returns across each of the past one, three, five and 10 years. The table shows the top 10 names based on five-year performance.

Among the names are Artemis’ SmartGARP European Equity, Liontrust European Dynamic and WS Ardtur Continental European, each of them beating the Stoxx Europe 600’s 179% total return over the past decade.

All three have a different portfolio make-up, with the Artemis fund’s making its biggest bet on the banks, while Ardtur Continental focused on firms involved in discovering, developing, and processing raw materials. Meanwhile, Liontrust has roughly 60% of its fund equally split between industrials and financials.

JPMorgan European Growth & Income (JEGI) is the only investment trust to make top quartile returns over each of the one, three, five and 10-year periods.  

Like Artemis’ European fund, the JPMorgan trust is heavily invested in the banking sector, one of the main areas Europe is known for and one that rallied over the past year.  

Value ETFs are enjoying their time in the sun

Various exchange-traded funds (ETFs) appear on the list, including some that focus on stocks that meet the ‘value’ investing criteria, as opposed to the whole market. They include iShares Edge MSCI Europe Value Factor ETF.

Value refers to an investment style which involves backing companies based on the belief they are being temporarily mispriced by the market, colloquially referred to as ‘cheap’, creating an opportunity to generate positive returns should other investors show more interest, and the market corrects its mispricing.

This style is typically regarded as the opposite to ‘growth’ investing, which doesn’t focus on how much a stock is worth at the time, but rather how fast the business can grow.

The growth style is typically associated with the US market, especially its major tech names. Meanwhile, value options are traditionally found in energy, financials and utilities, sectors which dominant the ETFs mentioned in this article and which are some of the major industries in Europe.

Over the past decade ‘growth’ investing has made better returns than ‘value’, mainly thanks to the US and interest rates and inflation being low, but over the past year this has switched around and we've seen value companies pushing ahead while questions around AI have hit growth sectors.