Summary:
The S&P 500 has experienced its slowest start to a year since 2022, with only a 0.5% gain from January to May 2025. Investors are shifting focus from the U.S. to Europe, driven by tariff-related uncertainty and the threat of a U.S. recession. European stocks, particularly undervalued small-caps, are poised for growth, bolstered by increased defense spending and policy coordination across the continent.
What This Means for You:
- Consider diversifying your portfolio with European stocks to capitalize on their undervalued status.
- Focus on European small-cap companies, which are expected to benefit from domestic spending and stimulus measures.
- Invest in sectors like defense, which are directly impacted by geopolitical shifts and increased government spending.
- Prepare for potential volatility in U.S. markets due to ongoing tariff uncertainty and economic slowdowns.
Three Investment Trusts for Undervalued European Stocks:
European stocks have outperformed their U.S. counterparts in 2025, driven by unique advantages and geopolitical shifts. Below are three investment trusts offering exposure to undervalued European equities:
1. Fidelity European Trust (LON:FEV)
Managed by Marcel Stotzel, this trust focuses on long-term investments with a conservative approach to capital preservation. It emphasizes bottom-up stock selection, avoiding macroeconomic bets.
2. Montanaro European Smaller Companies Trust (LON:MTE)
George Cooke’s trust targets high-quality, growing small-cap companies with strong barriers to entry, recurring revenues, and organic growth potential.
3. JPMorgan European Discovery Trust (LON:JEDT)
Jules Bloch’s trust specializes in European small-cap stocks, focusing on companies with exceptional long-term growth potential and exposure to domestic markets.
Extra Information:
For further insights, explore these resources:
Top Funds to Invest In Now – A guide to diversifying your portfolio.
Understanding Tariffs and Their Impact – Explains how tariffs affect global markets.
European Defense Spending – Details the surge in defense investments across Europe.
People Also Ask About:
- Why are European stocks outperforming U.S. stocks in 2025? Tariff-related uncertainty in the U.S. and increased European policy coordination have driven capital flows to Europe.
- What sectors are best for European investments? Defense, small-caps, and infrastructure are poised for growth due to stimulus and geopolitical shifts.
- Are European small-caps a good investment? Yes, they are undervalued and closely tied to domestic spending, offering high growth potential.
- How does U.S. protectionism impact global markets? It creates uncertainty, prompting investors to diversify geographically, benefiting Europe.
Expert Opinion:
Marcel Stotzel, co-manager of Fidelity European Trust, emphasizes that Europe’s undervalued stocks and policy shifts present a unique opportunity. He warns that U.S. protectionism could further catalyze Europe’s economic resurgence, making now an ideal time to invest in European markets.
Key Terms:
- Undervalued European stocks
- European small-cap investments
- European defense spending
- Geopolitical impact on markets
- European investment trusts
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