The data is stark. European equities, excluding the UK, strongly outperformed the US market from the start of the year to March 3, as chart one shows.
That is a steep reversal on previous years, where the US market beat all.
So what has changed and, more importantly, can it continue?
The shifting market sentiment has certainly benefited Jacob de Tusch-Lec, who runs the £1.8bn Artemis Global Income fund*, which was the best-performing fund in the IA Global Equity Income sector in the 2024 calendar year, and over the 12 months to March 3.
The fund has 27 per cent allocated to European equities, compared with 31 in the US market, representing a steep overweight to the continent, and underweight to Wall Street.
He says: “The US market outperformed for a decade, and when we went to see clients, they would ask us, ‘Why don’t you have more in the US?’. But it depends on what you are investing in; if you bought the wrong things in the US, you didn’t outperform, and as an income fund, well, if we had bought the US income stocks, you didn’t outperform.”
Among the reasons cited by market participants for the rally in European equities in 2025 are: the weakness of the euro; investors diversifying after bagging significant gains in the US in 2024; and the certainty of interest rate cuts making it a more appealing market when considered next to the murkier outlooks in the US and UK.
John O’Toole, global head of multi-asset solutions at Amundi, says he is among those who reduced their US equity allocation in the final quarter of 2024 and increased his exposure to Europe, among other markets.
He says: “The level of concentration in the US market, and the valuations, made us think it would be prudent to diversify our risk somewhat. As multi-asset investors, we don’t really take extreme views. There were a lot of [equity] markets that were undervalued, and there are a lot of excellent global companies listed in Europe. The growth backdrop may not be wonderful, but there was a lot of pessimism already reflected in the valuation.”
Francis Chua is part of the multi-asset team at Legal and General, and is another investor that has been overweight European equities. But he sounds a note of caution, adding that while his overweight position reflected a desire to diversify, “the macro picture is unclear really, and so while we are overweight, we aren’t really looking to add any more to our positions there.
