Investors brave enough to peek at their account statements recently know that US stocks have had a rocky 2025. Even before tariff-related volatility, DeepSeek AI’s launch clouded the major technology theme that powered the market in 2023 and 2024. According to my colleague Dave Sekera, AI stocks entered a bear market in March.
The best-known investment bright spot in 2025 has thrived in response to uncertainty. You’ve probably heard about the price of gold shooting up, as panicky investors flee to a millennia-old store of value. Gold was also a shelter in the storm in 2022, when inflation triggered double-digit losses in stocks and bonds.
But there have been equity gains to be had in 2025. Especially outside the US, some asset classes are thriving. When I look at year-to-date returns for Morningstar’s extensive range of equity indexes, I notice a few surprising stars: European stocks, Latin America, and real estate investment trusts. What’s the common thread that connects the three? All had been underperformers in prior years.
European Stocks Have Been Made Great Again
Morningstar’s European stock index is riding high this year. “The macroeconomic environment has been improving in Europe,” says Michael Field, Morningstar’s chief Europe market strategist. The financial-services sector is a key beneficiary, with names like Banco Santander SAN, UniCredit UNCFF, and HSBC HSBA soaring. Then there’s Germany’s newfound interest in deficit spending and the continent’s focus on military self-sufficiency, spurred by the Donald Trump administration. Spiking share prices for defense stocks like Rheinmetall RHM and BAE Systems BA. tell that story.
US tariff announcements caused sharp selloffs in Europe, as they did across the globe, but the recovery has been V-shaped. A weakening US dollar has magnified European equity gains for unhedged US investors. It doesn’t hurt that, unlike the US Federal Reserve, the European Central Bank and the Bank of England have actually been cutting interest rates.
Coming into the year, my research and investment colleagues called Europe “the most attractive developed-markets region globally.” The “Magnificent Seven” era of US equity market exceptionalism left European stocks in the dust, plagued by slow-growth and an “old economy” orientation (with some notable exceptions like semiconductor manufacturing enabler ASML ASML and weight-loss drugmaker Novo Nordisk NV0 ). Years of underperformance created a valuation opportunity. Europe is home to many high-quality global businesses, whose share prices were discounted because of their domicile. Regardless of valuation, European stocks are worthy of inclusion in a diversified portfolio.
Latin America: Can the Revival Last?
South of the US border, stocks are rallying. Morningstar’s Latin American equities index is up more than 22% so far in 2025, thanks to Brazil, Mexico, and the smaller markets of Colombia and Chile. Here, too, a weakening dollar has boosted equity returns for unhedged US investors. Latin America is seen as a relative winner from Trump tariffs. Corporate earnings have also been strong.
This marks quite a turnaround. The Morningstar Brazil Index and the Morningstar Mexico Index both suffered losses of more than 25% in US dollar terms in 2024. Brazil, for its part, faces serious fiscal challenges. In Mexico, sentiment was dented by election results on both sides of the border. Mexican President Claudia Sheinbaum and US President Donald Trump were both perceived as negatives for Mexican stocks.
As with Europe, Latin American stocks looked like a real bargain coming into this year. In Morningstar’s 2025 Outlook, my colleagues on Morningstar’s research and investment team wrote that “concerns about Mexico and Brazil appear exaggerated.” In fact, they identified Brazil as the highest potential global equity market for the coming 10 years. Latin American stocks are volatile but could hold more upside.
REITs, Especially Those Outside the US, Outperform
Real estate investment trusts are also up double digits this year—outside the US. The strength spans developed markets like Europe, Japan, and Australia, as well as emerging markets like Mexico, India, and South Africa. Property sectors in many geographies are vibrant, bolstered by low or falling interest rates.
What about the US? The Morningstar US REIT Index is well behind the Morningstar Global Markets ex-US REIT Index in 2025, but it’s in positive territory, ahead of the broad US equity market. US interest rates that appear to be staying higher for longer are seen as a negative for real estate. That said, REIT yields are attractive, and property is a “real asset” that can act as an inflation hedge.
Morningstar equity analysts continue to see upside potential in the sector. REITs span an array of types—from Kilroy Realty KRC in office space, to Healthpeak Properties DOC, to Americold Realty Trust COLD, which owns and operates cold storage warehouses. All are currently considered undervalued by Morningstar equity analysts.
Diversification Assures Exposure to Unloved Asset Classes
US mega-cap technology-oriented stocks did so well for so long that many investors thought they were the only game in town. Coming into 2025, it was hard to envision how the Magnificent Seven could ever be knocked off their perch. The rise of artificial intelligence, widely viewed as “bigger than the internet,” seemed inexorable. No one saw DeepSeek AI coming, and few predicted the degree to which tariffs would disrupt.
Gravity is a powerful force in investing, too. US stocks, especially on the growth side of the market, posted returns in 2023 and 2024 that far exceeded their historical levels. Their losses in 2025 can be seen as a reversion to the mean, or a return to long-term averages. Along these lines, I recommend a study by my colleague Jeff Ptak, who called buying into popular investment types a “bad idea.”
The surprising winners of 2025 show that investment performance is dynamic. Yesterday’s stars can fall, and zeros can become heroes. Contrarian bets can be profitable, though they can also take time to pay off. Investors who diversify by geography, style, and market capitalization are also well placed to benefit from leadership change.
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