An investor recently contacted us after reading financial news reporting that Morgan Stanley Asset Management believes European equities will continue to outperform U.S. equities in 2026, citing lower valuations in Europe and an undervalued euro. Do we agree—and what vehicles do we recommend for European exposure?
This investor was very eager to shift investments to capitalize on European growth potential and avoid missing out on the trend. They noted that European markets have outperformed U.S. markets recently; however, in recent months, investors could have invested almost anywhere and still done fairly well.
Looking at valuations, European stocks trade around 13 to 14 times forward earnings, while U.S. companies trade at nearly 22 times—a wide gap. Historically, cheaper markets often outperform over time, but valuations alone don’t guarantee results. The discount may reflect lower growth expectations, different sector composition, or currency risk.
U.S. markets also have something Europe doesn’t: the “Mega Cap 7”—Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla—each with trillion-dollar market caps. Together, they make up about one-third of the S&P 500, the U.S. market’s capitalization-weighted benchmark. If the artificial intelligence trend continues, the U.S. could maintain its lead.
The big picture is that investors should maintain a diversified portfolio—not just across large-, mid-, and small-cap stocks, but also across international markets, emerging markets, and global indices. No one has a crystal ball to predict which market will outperform next.
Most investors aren’t trading daily or analyzing trends deeply enough to make tactical moves. European research coverage and accounting standards also differ, requiring experienced teams to identify opportunities. By the time firms like Morgan Stanley share their outlooks publicly, they’ve likely already acted—and updates may take months to reach the average investor.
For our clients, we prefer gaining European exposure through exchange-traded funds that track benchmarks of developed and emerging markets outside the United States. Regardless of how bullish you are on Europe, avoid concentrating too heavily in any region. We recommend limiting additional exposure to just a few percentage points of your overall diversified portfolio.
Monitoring markets and adjusting positions is a full-time job. If you act on advice to invest in Europe, how will you know when it’s no longer attractive? That’s where an active portfolio manager adds value—making timely adjustments in response to market and economic shifts.
When working with investors, we build risk-based models designed to achieve their goals, with allocations diversified across asset classes and room for tactical moves as conditions evolve. In the end, the goal isn’t to chase short-term trends—it’s to build a resilient portfolio that can weather changing markets. Whether Europe outperforms the U.S. market next year or not, maintaining a well-diversified, actively managed strategy remains the best path to long-term success.
If you have questions on how international investments can work in your portfolio, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the October 25, 2025 “Henssler Money Talks” episode.