A changing landscape for investors in Europe

It’s an exciting time to be investing in European equities. Since the Global Financial Crisis in 2008 the US equity market has become increasingly dominant – it makes up 71% of MSCI World Index¹ - which doesn’t leave much for the rest of the world.

But we think for a number of reasons we are entering a period where those huge flows of global capital into the US may be beginning to dissipate, and this trend may benefit other markets including Europe and Asia.

The Trump Administration has been quite clear that they don't see the large US deficit and capital account surplus as beneficial for the country. With the administration’s tariff reset and its range of other economic policies, they are seeking to reduce the concentration of global capital in the US while at the same time increasing the domestic manufacturing capacity in key industries. 

Of course, the US government policies are unpredictable, but we see the potential for a change to the economic order that could benefit European equities. History tells us that these kind of capital migrations don’t last for a year or two but for much longer.

Deep discounts

We remain bullish on the US economy, which we expect will remain dominant due to strengths such as technological innovation, energy independence  and low regulation. But we think a  structural change is overdue, and that European equities have been overlooked for too long. The asset class has world-class businesses in many sectors, trading at historically deep discounts.

Two interesting facts about European equities and diversification: Less than half of the revenues generated by listed European companies come from within the region – which highlights the global nature of these companies. Also, market concentration is less pronounced  in Europe: The 10 biggest constituents of the MSCI Europe make up 21% of the index market cap vs 37% for the S&P 500.²

Best returns

As European equity investors, we are bottom up, high conviction and highly active. We typically own 30-40 stocks in a portfolio. We look for companies that are the best at employing capital and generating the highest returns on capital. We also look for idiosyncratic return opportunities where a company’s returns are less related to macroeconomic conditions.

We do highly intensive due diligence on our companies – wider and deeper than talking to management. We seek out industry experts, read widely and are laser-focused on identifying and managing potential risks at both a company and portfolio level.

We are an experienced team, having invested through several economic cycles. We have a strong idea of what we’re looking for -- we’re not trying to be experts on everything.

Europe as a region and a continent is made up of around 30 different countries, and their economic outlooks and performance can be quite different. For example, Germany and the UK have struggled recently, but the economies in some of the Nordic countries have been growing steadily. We think the prospects also are good in southern European countries such as Spain, Portugal and, to a lesser degree, Italy.

Globally competitive

These countries have abundant cheap energy. Spain has significant solar resources and onshore wind, and the Nordics have hydro and wind. They are globally competitive with their energy prices.

Southern Europe also is near the end of around two decades of deleveraging, so consumer debt is low, the banking sector is healthy and supportive of expansion and even immigration patterns are positive.

There are a number of sectors we like in the region including semiconductor and semiconductor capex equipment stocks. They're exposed like US tech companies to AI, client computing, EVs and other growth areas, and they are cheap versus history and versus the US Magnificent Seven (Apple, Microsoft, Nvidia etc.).

Banks and buybacks

We also are positive on select European banks. They are attractively valued versus history, and generate healthy returns to shareholders in the form of dividends and buybacks. Financials represent the other end of the growth/value range versus technology stocks. We consider ourselves to be agnostic with regard to growth and value styles, and nimble enough to change when conditions require it.

There is also a range of idiosyncratic companies that we find interesting including some good businesses in construction and building materials, which are coming out of a period of low  activity into a period of potential growth. We also own a European airline, which is a world leader in return on capital employed and free cash flow, and we like a select number of companies in retail and consumer businesses, which are global leaders in their sectors.

We believe that an allocation to European equities should be an important part of any well-diversified investment portfolio. They can provide diversification and exposure to globally competitive businesses at attractive valuations. While the US has dominated global equity markets in recent years, we believe that structural shifts in trade, capital allocation and government policy support a long overdue move toward Europe.

Sources

¹MSCI World Index (USD) factsheet, 30 April 2025. US 71%, Japan 5.7%, UK 3.8%, France 2.9%.

²Jupiter, Feb. 2025

Strategy specific risks

• Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
• Share Class Hedging Risk - The share class hedging process can cause the value of investments to fall due to market movements, rebalancing considerations and, in extreme circumstances, default by the counterparty providing the hedging contract.
• Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
• Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
• Derivative risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
• Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
• Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the strategy’s assets.

Important information

This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Company or holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.