Yet Europe is a powerhouse of an economy with the single market of the eurozone at its heart. Consider some eurozone stats, sourced from the European Central Bank:
- The eurozone is home to 351m people – 5% of the global population and more than 337m for the US.
- Eurozone GDP makes up 11.9% of world GDP compared to 14.8% for the US and 3.4% for Japan.
Europe is also home to leading brands in some of the world’s biggest industries – France’s LVMH, Dior and Hermès in luxury goods, Germany’s Volkswagen, Mercedes and BMW in cars and Switzerland’s Novartis and Roche in healthcare.
There are several good reasons to consider investing in Europe now. President Donald Trump’s tariff war has shaken confidence in the supremacy of the US stock market. Institutional investors have become more inclined to shift money away from the US and toward Europe, according to a range of surveys.
Meanwhile, European economies are now stabilising after a series of crises, from the war in Ukraine to the soaring cost of energy. Lower borrowing costs are also helpful to companies with the prospect of further cuts to come.
Some uncertainty remains, particularly surrounding Ukraine. And as an area mostly made up of advanced economies, there is less room for growth than in other parts of the world. Investors with an appetite for risk may want to look further afield for strong growth opportunities.
Europe vs the US
The switch in fortunes has been remarkable. In fact, 2025 was the third best start to a year for Europe vs US in more than half a century, registering 22% outperformance to the end of April, according to Schroders.
The US has bounced back but the difference in performance remains stark. The MSCI Europe index is up 9.4% compared to 1% for America’s S&P 500 index. Spain’s stock market is up 23.5% and Germany is 20.7% higher (figures as of 20 May).
How cheap is Europe?
Aside from the other reasons to invest, or not invest, valuation is critical. And Europe looks far cheaper than the US. That’s understandable given the decade-plus of bumper returns achieved by the New York stock market, particularly among technology companies; valuations have been stretched for a while. And even with the volatility in 2025, American shares still look expensive.
The basic measure is to compare prices with earnings. The US is on a price-to-earnings ratio of 25. This is not only much higher than 16 for Europe but it also 19% above its 15-year average, according to analysis by investment company Schroders.
The table below sets out the p/e ratios for each investment region and shows in brackets the percentage above or below the 15-year average.
The second column introduces a more sophisticated version of the P/E ratio known as CAPE (the cyclically adjusted price to earnings ratio). This smooths out the ups and down of the business cycle which, its fans say, makes it is a better measure. Again, Europe’s number, at 19, is far lower than 26 for the US. But it is also 10% above its long-run average.
Finally, the third column shows dividend yield, with higher income hinting at better value. Europe offers the second highest income of the investment regions shown, but it is higher than the 15-year average.
| Market | P/E ratio | CAPE | Yield |
|---|---|---|---|
| US | 25 (+19%) | 33 (+24%) | 1.4% (+41%) |
| UK | 13 (-8%) | 15 (+10%) | 3.6% (+4%) |
| Europe (excluding UK) | 16 (-3%) | 19 (+10%) | 3.1% (+3%) |
| Japan | 14 (-14%) | 21 (-5%) | 2.4% (-12%) |
| Emerging markets | 14 (+5%) | 13 (-3%) | 2.7% (0%) |
Source: Schroders Equity Lens. Figures to 30 April 2025.
How much of your portfolio should be in Europe?
Of course, you shouldn’t be panic-selling US holdings and shifting them across the Atlantic. The US remains an extremely large and dynamic economy. It plays host to some of the most profitable and promising companies on the planet.
There are also several potential headwinds to be wary of when it comes to Europe. The war in Ukraine is an obvious one, but concerns like the increased cost of living have not gone away.
The best portfolio is a well-balanced one. You should think carefully about the diversification of your investments and spread them across a range of regions and sectors. Don’t forget that different funds often invest in similar companies. You can check the overlap with our X-ray tool. We explain how to do that here: tools that can make you a better investor.
How to invest in Europe
Although there are fewer funds, investment trusts and ETFs (exchange-traded funds) available to those looking to invest in Europe compared to the UK or the US, the number of choices can be bewildering.
A few Select 50 funds – a list of our favourite funds selected by experts – provide exposure to Europe. Here are a few options for you to consider:
This fund aims to deliver growth by investing in smaller companies. Its remit is Europe, excluding the UK. It has 97 holdings with around a fifth of the fund invested in financial companies. Well over 60% of the fund is invested in six countries: Sweden, Switzerland, Italy, the Netherlands, France and Germany. Because of its focus on small companies, its holdings are often not household names. It currently yields 1.13% and has an ongoing charge of 0.82% a year.
The top holdings of this fund include some of the biggest companies in Europe, including mobile network Orange, ABN Amro and BNP Paribas, the French bank. However, last year it underperformed against its target. It favours energy companies and banks and is weighted towards France and Germany. It follows a value investing philosophy, seeking out unloved companies. Just over 6% of the fund is currently held in cash. Its yield is 3.21% and its annual charge is 0.96%.
This is a passively-managed fund which, with an annual fee of 0.1%, is a very cheap way to get European exposure. Passive funds track and index, avoiding the cost of employing a fund manager to select shares. The fund has several hundred holdings with Louis Vuitton (LVMH), Nestle and Siemens among its top 10. Its current yield is 2.77%.
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