Is It Time to Invest in Europe?

STREET SMART

-  BY JAMES K. GLASSMAN

EUROPE’S stocks have been terrible for investors. The MSCI Europe index, which captures the performance of 399 midand large-capitalization stocks across 15 markets, returned an annual average of just 4.2% over the past 10 years. The equivalent MSCI index for U.S. stocks returned just over 11%. Since 2018, the Europe index has beaten the U.S. index in only one year, 2022. But in 2023 and 2024, the U.S. beat Europe by an average of some 15 percentage points.

Europe’s markets have done poorly because Europe’s economy has been puttering along with minuscule growth, and Europe’s companies have, with some important exceptions, lacked the drive and innovation of U.S. firms.

So why on earth am I recommending the stocks? First, Europe is being shaken out of its lethargy, militarily and otherwise, mainly by Donald Trump's changes in U.S. policy. Second, Europe’s economy and its businesses are improving. Third, European stocks are cheap. I am not the only one recognizing Europe’s investment potential. Despite recent market turmoil, so far this year, iShares Europe (symbol IEV, $52), a broadly diversified exchange-traded fund, has returned 0.10%, compared with a loss of 13.6% for a U.S. equivalent, SPDR S&P 500 (SPY). (Prices and other data are through April 7; investments I like are in bold.)

U.S. stocks have dropped for several reasons, including the persistence of inflation. But in my view, the main issue is that investors are spooked by the Trump tariffs. Like the rest of the world, as a trade war breaks out, Europe will suffer. But Europe is in a relatively good position because of the strength and history of the European Union as the world’s largest trading bloc, with more than 440 million consumers and $4 trillion in trade among the 27 EU countries themselves.