Billy Huang, Brompton’s Senior Investment Analyst covering European equities, explains how rising U.S. tariff concerns, an improving interest rate environment, and government stimulus are drawing investor attention back to Europe.
How is the European equity market performing so far?
Investors have long been focused on U.S. equities, with attention focused on tech giants and high growth names. As of midway through 2025, European equities are providing compelling reasons for North American investors to look abroad.
Since the start of the year, the STOXX 600 index, the European equities benchmark, has significantly outperformed the S&P 500 Index. This is a sharp reversal from 2024, when the S&P 500 Index delivered approximately a 25% total return compared to the STOXX 600’s modest growth of about 9%.
Fund flows into Europe are increasing owing to tariff concerns and a flight to safety away from the U.S. market. Brompton believes this could be the beginning of a structural reallocation for global investors.
What keeps European stocks attractive?
Better macroeconomic environment
The macro backdrop, especially the interest rate environment, has become more favorable for Europe.
In the first quarter of 2025, Eurozone GDP came in strong at 0.4% growth, while US GDP contracted by 0.3%.
Inflation in Europe has also cooled down and stabilized, with the potential to decline further as the euro strengthens. In fact, the ECB, the European Central Bank, has cut its policy rate from 4.5% to 2.4% in less than a year. We believe the ECB is more flexible to reduce rates, as inflationary pressure eases further. We’ve also seen recovery in bank lending to both households and businesses.
Fiscal policy tailwinds
We believe government stimulus will unlock Europe’s growth potential. Germany recently announced an unprecedented defense and infrastructure spending plan. This package, approved by both houses of parliament, allows defense spending above 1% of GDP to be exempt from the country’s debt brake (ie. Their constitutional debt ceiling). This marks a dramatic shift from Germany’s traditional fiscal conservatism and is boosting investor confidence, especially in sectors like aerospace and defense. This fiscal pivot will support not only Germany but also the broader European economy in the years ahead.
Attractive valuations
European equities are trading at significant discounts compared to the US. Even after recent gains, valuation metrics remain compelling for European stocks. This represents a rare chance to diversify away from US mega-cap tech and into high-quality European dividend growers.
Why consider adding Europe to your portfolio?
Many investor’s portfolios are concentrated in U.S. equities, a concentration that comes with inherent risks.
By increasing exposure to Europe, investors can achieve better diversification and potentially enhance risk-adjusted returns.
We believe the tide is shifting and Europe has become more pragmatic, which provides structural tailwinds for Europe over the long term.
Brompton’s Approach
Brompton offers an actively managed European equity fund: Brompton European Dividend Growth ETF (EDGF).
EDGF invests in large-cap dividend-paying European companies. The portfolio consists of carefully selected high-quality European stocks that tend to outperform the broader market through different economic cycles.
These companies have stable businesses, visible growth catalysts, disciplined capital allocation, and strong track record of returning value to shareholders. The fund also employs covered call writing designed to enhance cash flow and reduce volatility.
