This week we cover the Association of Investment Companies’ Europe Sector, comprising six funds with a value of £5bn.
It’s a pivotal moment for Europe, as the President of the US carves a new world order, putting the security and economic interests of America above the interests of his immediate neighbours and transatlantic allies.
Increasingly it seems that the fifty nations of Europe will have to forge their own path, but the continent is fractured by political, security and economic rifts, with a significant ‘hot’ war ongoing on its eastern borders.
The European economy in 2025 is navigating a complex landscape with the aforementioned conflict in Ukraine remaining a central strategic concern. Recent discussions between US president Donald Trump and Russian president Vladimir Putin have sparked cautious optimism about a potential ceasefire. Such a development could alleviate energy prices and bolster the euro’s performance in European markets. However, the imposition of US tariffs continues to pose significant challenges, casting a shadow over trade relations and economic stability.
Mounting security threats
In many ways, those companies that are exposed primarily to their own domestic markets and near export markets of Europe will prosper. Conversely, those firms that make most of their money from export to the rest of the world – bearing in mind the knock-on effect of US tariffs will be retaliatory tariffs from other nation states, including China – will undoubtedly take a knock.
Europe faces mounting security demands, particularly in light of reduced US support under Trump. This shift necessitates increased defence spending among European nations, prompting complex political and economic decisions. Balancing higher military expenditures with existing social welfare commitments presents a formidable challenge, potentially leading to political backlash if social spending is curtailed. Proposals such as establishing a ‘rearmament bank’ by EU and NATO members are under consideration to address these financial strains.
Beneficiaries of this move will be European defence stocks, and earlier this week The Armchair Trader suggested some of the European defence firms that might do well from this strategic shift.
Economic prospects are mixed
The economic outlook for Europe in 2025 is mixed. While some experts predict a strong year for global stocks with Europe potentially leading the way, this optimism is tempered by significant challenges. Germany, Europe’s economic powerhouse, is experiencing a notable decline in manufacturing jobs, with nearly 250,000 positions lost since the onset of the Covid-19 pandemic. This trend raises concerns about deindustrialisation and underscores the need for strategic economic interventions to prevent further industrial decline.
In summary, Europe’s trajectory in the coming year will be heavily influenced by its ability to navigate these intertwined strategic, security, and economic challenges. The potential for a ceasefire in Ukraine offers hope, but the continent must also address internal economic weaknesses and recalibrate its security strategies in response to evolving geopolitical dynamics.
Technology – which in the past Europe held a leading position through the likes of Spotify, Ericsson (before being absorbed into the Sony machine) and Nokia – offers a route to growth, as does advanced engineering and manufacturing, where European companies retain a cutting-edge.
Below is the performance of the top three funds in the sector over one-year, five-years and 10-years.
AIC Europe sector performance:
| Fund | 1 year | 5 years | 10 years |
| JPMorgan European Growth & Income | +15.14% | +80.25% | +162.56% |
| Henderson European Trust | +12.32% | +66.34% | +140.90% |
| Fidelity European Trust | +9.11% | +65.18% | +198.82% |
| Sector average | +7.74% | +40.00% | +146.43% |
| Source: Association of Investment Companies, to 17th February 2025 | |||
JPMorgan European Growth & Income [LON:JEGI]
Managed by Alexander Fitzalan Howard, who has been with the fund for nearly 20-years, the JPMorgan European Growth & Income plc is an investment trust focused on delivering capital growth and income by investing in European companies, excluding the UK. It seeks to achieve this through a diversified portfolio of high-quality companies with strong growth potential and sustainable dividend yields. The trust aims to provide investors with a balanced approach, combining growth opportunities with income generation.
Howard said: “[Although] European equities trade on an extreme discount to US equities […] the European equity market today can offer comparable levels of quality and growth potential. […] With economic growth forecast to increase in both 2025 and 2026, we believe there are signs for optimism. […] Looking ahead, improving economic conditions, attractive fundamentals and structurally improving interest rates are likely to present investors with many attractive opportunities across markets.”
Henderson European Trust [LON:HET]
The Henderson European Trust is an amalgamation of the Henderson European Focus Trust and the Henderson EuroTrust, after the fund management group decided to rationalise its European Equity Investment Trust range and merged the funds in July 2024.
HET invests in high-quality European companies with strong growth potential. It focuses on global leaders that are based in Europe but benefit from international market opportunities. The managers, Robert Schramm-Fuchs and Nick Sheridan, aim to invest long-term in well-managed companies with solid business models and financials, selecting around 35 to 45 stocks across diverse sectors. They seek growth from share price appreciation and dividends.
Fidelity European Trust [LON:FEV]
The Fidelity European Trust invests mainly in continental European equities, focusing on companies capable of consistently growing dividends over a three-to five-year horizon. It uses a disciplined stock-picking approach, emphasising firms with solid fundamentals, strong balance sheets, and good cash generation. The portfolio typically holds 40 to 50 diversified stocks, with up to 20% invested outside of continental Europe. It aims to deliver long-term returns through dividend growth and a cautious risk management strategy.
The managers explained recently: “…The ‘main’ political event of 2024, [was] the re-election of Donald Trump in the US. The immediate reaction of investors has been to buy US assets and the dollar and sell non-US assets and non-US currencies. The sensibility of this response is unclear, but it has partly explained European equities’ underperformance against US equities during 2024. As we head into 2025, we have a German election to contend with, including the prospect of increasing vote share being won by the right wing. It is just as well that we can invest in high quality European companies rather than invest in the stability of European politics.”
