Transatlantic shift: a new era

For some time now, we have argued that the American stock market – especially the big tech names – could not continue to outperform indefinitely. At the same time, we highlighted the opportunities in Europe, precisely because expectations here are so low and valuations are historically cheap. The developments in the first quarter of 2025 confirm our analysis.

America under pressure, Europe resilient

This year, US equities have suffered their biggest setback since 2022, with growth stocks recording their worst performance since 2001. The so-called “Magnificent 7” (Nvidia, Tesla, Alphabet, Amazon, Meta, Apple, and Microsoft) have seen their valuations sharply corrected. In contrast, European markets have remained relatively calm. Not because everything is perfect here – Europe’s structural issues are well known – but because these challenges have long been priced in. As we have often said: even a modest improvement in sentiment towards Europe can open the door to strong performance. That’s exactly what we are seeing in the numbers this quarter: European equities have outperformed their US counterparts.

Tariffs, volatility, and opportunity

The new US import tariffs have sent ripples through global markets. The dollar has weakened, US interest rates have risen, and share prices have come under pressure. Companies will need to revise their earnings forecasts for 2025. The average US stock is now 26% below its peak from last year – a decline comparable to major crises such as the 1987 crash, the dot-com bubble from the late 90s, and Covid in 2020.

In contrast to the US, Europe is home to many companies with low valuations, robust balance sheets, and attractive dividend yields. Add to this the fact that Europe has inflation better under control and more room for supportive government policy, and the continent stands out as a highly attractive environment for investors.

Value investing: the rational choice

The long-standing outperformance of the US over Europe is, for now, on hold. Against this backdrop, we have used the recent market volatility to build a carefully selected portfolio of European stocks. These are businesses that are undervalued, have strong balance sheets, and pay out high dividends. In numbers:

• Price/earnings ratio around 10

• Net debt to EBITDA of 1 (top investment grade)

• Dividend yield of roughly 4%

For the diligent, active value investor, turbulent times like these offer a rare opportunity to assemble a robust portfolio with such characteristics. It is exceptional to find all these attributes at such low prices in one portfolio. Those who focus on value and quality have every reason to look at Europe – not as a risky gamble, but as a rational choice in an uncertain world.

See our portfolios