Despite Tariffs, These Investment Experts Are Bullish on European Equities

European equities were one of the better-performing investments during the first half of 2025. They could be a good long-term prospect for U.S. investors needing to diversify, according to these investment managers.

Map of Europe and euros superimposed on stock market indicators.

(Image credit: Getty Images)

By Matthew Sommer, PhD, CFA®

published 31 July 2025

in Features

For the better part of the last decade, U.S. individual investors have shown little interest in European equities.

Considered by some as a stodgy, overly regulated and slow-to-innovate place to conduct business, Europe has largely taken a back seat as investors found more profitable investment opportunities closer to home.

Through the first half of 2025, the 10-year net annualized return of the S&P 500 Index was 13.6%. In comparison, the MSCI Europe Index (in U.S. dollars) returned 7.4% over the same period.

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While it is hard to argue with investors' enthusiasm for U.S. stocks, the results in early 2025 may suggest the beginning of a new paradigm.

Through the first six months of the year, the S&P 500 Index has managed a 6.2% return, while the MSCI Europe Index was up 23.9%.

Although six months hardly constitutes a long-term trend, Europe's recent turnaround has some U.S. investors wondering whether these results reflect a short-term anomaly or the early stages of a lucrative long-term investment opportunity.

Janus Henderson Investors portfolio manager Robert Schramm-Fuchs argues in favor of the latter.

According to Schramm-Fuchs and his U.K.-based investment team, several recent developments account for their bullish thesis on European equities. These include:

Germany's fiscal stimulus policy, which includes, among other things, a far-reaching infrastructure investment package
Consensus among policymakers to adopt a more pro-business posture through the removal of unnecessary bureaucracy and regulations
A burgeoning securitization market that will facilitate lending and investment
A new Savings and Investments Union initiative that would shift European household savings into investment products that benefit European companies

Collectively, Schramm-Fuchs projects these initiatives could result in upwards of a 20% boost to European GDP.

Of course, there are risks that investors should not overlook, such as the potential for a trade war with the United States, especially given Europe's reliance on critical raw materials and digital technology.

In mid-July, the Trump administration announced a 30% tariff on the EU effective August 1, 2025. While Janus Henderson's long-term outlook remains favorable, the impending deadline for the EU-U.S. trade talks remains a key event in the near term.

A global economic slowdown is likely to inflict more pain in Europe as the technology-heavy U.S. equity indexes tend to be more defensive.

Nonetheless, Schramm-Fuchs and his team believe the upside prospects outweigh the downside risks. Areas of the market that the team find most attractive include banking, defense and select cyclicals.

Portfolio positioning

U.S. individual investors have long held what is known as a "home bias."

"Our research shows that the typical moderate allocation model managed by financial advisers has about a 76% equity allocation to U.S. stocks, compared to 24% overseas," says Adam Hetts, global head of Multi-Asset at Janus Henderson.

"In comparison, the U.S. contribution to the MSCI ACWI (All Country World Index) is roughly 63%. Given this mismatch, international equities may warrant a large reallocation in portfolios."

As a starting point, Hetts suggests investors look carefully at their employer-sponsored retirement plan options.

In many cases, plan participants can access a broadly diversified basket of non-U.S. investments in a single mutual fund.

As a rough rule of thumb, "a quarter to a third of an individual's equity allocation could be directed overseas," Hetts says. "So, for a 60/40 investor, that would mean a 15% to 20% international equity allocation."

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Of course, the right allocation may be more or less depending on an individual's risk tolerance, time horizon and other factors.

Ben Rizzuto, a wealth strategist at Janus Henderson, points out that most employer-sponsored retirement plans are unlikely to have a European-focused equity fund, so these investments are potentially best made in a brokerage account outside of the plan.

"Think of your plan's international option as a core holding and a European equity fund as a way to further take advantage of return potential and diversification benefits," he says.

What's more, making this type of investment in a taxable account allows individuals to claim the foreign tax credit.

According to Rizzuto, "Foreign jurisdictions generally do not recognize the tax-deferred nature of 401(k) plans and IRAs. As a result, foreign taxes are automatically withheld on dividend payments, and there is no relief for U.S. investors.

"On the other hand, when these investments are held in a taxable account, a tax credit is available."

European equities may not be for everyone, but for investors with a moderate to aggressive risk tolerance who can benefit from diversifying their portfolio beyond U.S. stocks, Europe may be a logical place to start.

The opinions and views expressed are as of the date published, are subject to change and may not reflect the views of others in the organization. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regard to the results obtained from its use.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Matt Sommer is a Managing Director and Head of Specialist Consulting Group at Janus Henderson Investors. His team consists of various subject matter experts across several disciplines, including retirement planning, wealth advisory, practice management and investment strategies. They provide clients actionable insight and expertise they can implement into their business practice to retain and gain clients. Prior to joining Janus in 2010, Dr. Sommer spent 17 years at Morgan Stanley Wealth Management and its predecessors, Citi Global Wealth Management and Smith Barney, during which time his roles included director of financial planning and director of retirement planning.