Juliet Schooling Latter, Research Director at FundCalibre, explores the case for European equities after a prolonged period of underperformance.
Frustration is the word that comes to mind when I think about European equities over the past two decades, as sluggish growth, regulation and political uncertainty have dominated the market.
Having produced less than a third of the return from the S&P 500 (271.3% vs. 936.8%) in this period*, you can understand why many investors have begun to lose patience with Europe.
Europe has faced a host of challenges, ranging from the Global Financial Crisis and Brexit to the eurozone crisis, Covid, tariffs and war. I distinctly remember one fund manager who put this uncertainty into perspective.
When I asked about the challenges facing Europe, he simply stated: “There is always something wrong in Europe; you have to look past it for opportunities.”
Right now might just be a good example of that. Last year, European equities produced the strongest returns of any major economy (26.4%)**.
The first quarter of 2026 saw similar optimism due to stronger earnings and improved sentiment. However, this changed in March with the onset of conflict in the Middle East – optimism has since given way to volatility and dispersion in returns, with inflation and rising interest rates back on the radar.
It has to be a source of frustration for active managers in the space, given that we have started to see some of the levers pulled in terms of Europe’s improving outlook, namely the German fiscal debt break and increased spending.
But there will also be opportunities amid the uncertainty. For much of the past two decades, European equities have moved in tandem with the European economy, but this relationship has changed more recently as many of Europe’s largest businesses derive their revenue from outside of the region – meaning less dependence on the domestic economy.
Janus Henderson European Focus fund manager Robert Schramm-Fuchs says European large-cap equities have significantly outperformed European economic growth over the past 15 years, citing the need for them to adapt to the myriad of challenges facing the economy during this period.
“Businesses have been forced to learn how to operate in this new paradigm, and some companies that failed to adapt have disappeared. Those large-cap businesses that survived have often emerged stronger, becoming more disciplined with capital, and more efficient in their operations. The outcome is that the opportunity set in European large-caps has evolved,” he says***.
Janus Henderson European Focus typically holds 30 to 40 stocks, but is still well-diversified, with a framework that is driven by both sector themes and stock specifics.
The fund mixes blue-chip holdings with mid-cap stocks to achieve additional sources of alpha. Ideas are generated from a wide range of internal and external sources, enabling strong coverage of the investment universe.
It is important for the team to identify a catalyst, and ‘investing in change’ is a crucial part of the process. Veteran manager John Bennett retired from the firm in 2024, with co-managers Marc Schartz and Schramm-Fuchs assuming responsibility for the portfolio.
Since the pair took over as managers in February 2024, the fund has returned 40.2%, beating the average return for the IA Europe ex-UK sector (33.5%)****.
The fund did particularly well in 2025, returning 32.9%, aided by the rally in banks and improvement in defence stocks, while 2026 has been more subdued thus far amid rising uncertainty and geopolitical volatility^.
The fund currently has a strong position in both energy and financial services. Commenting on the former, Schramm-Fuchs says: “We increasingly live in a world where access to capital, scarce resources, energy and strategic infrastructure matters – yet supply constraints remain in place.”
He says: “The global significance of these supply restrictions has reinforced the importance of energy security. Both price and supply reliability are equally critical.
We see a range of world-class businesses in Europe that can play an important role in building out the world’s energy infrastructure. This is not limited to just mining companies, but also businesses providing equipment, technologies and services that support production.”
As for financial services, he says the backdrop has markedly improved, while interest rates have risen, removing profitability constraints.
“The short end of the yield curve now hovers around a ‘sweet spot’ between two and four per cent. We see this as a much more supportive environment for European financial stocks than we have seen for some time.
“The opportunity in financials extends beyond traditional banking. In our view, financial services businesses, capital market operators and wealth management firms also seem well placed as potential beneficiaries,” he adds.
Largest holdings in the fund at present include ASML, Santander, Banco Bilbao Vizcaya Argentaria, Erste Group and TotalEnergies^^.
Schramm-Fuchs says that with a double-digit discount on the forward P/E ratio relative to global equities, European equities still offer a compelling entry point. He says there remains a challenge of turning innovation into scale, citing a glass ceiling caused by regulation.
He also believes capital is a challenge, citing Europe’s dependency on bank lending. “Banks faced increased capital requirements, which caused lending to be selective, favouring parts of the economy they perceive as lower risk. The outcome is that Europe’s innovative smaller companies can struggle to access the capital they need to fund their development,” he adds***.
Nevertheless, Schramm-Fuchs says there remains a universe of resilient global businesses with international exposure and attractive valuations. He says there are opportunities in stronger financial institutions, businesses linked to scarce resources and energy security, and companies already utilising AI to solve specific real-world problems and automate tasks.
We like the managers’ pragmatic approach, which means they consider the overall macroeconomic environment and sector trends, as well as the criteria of individual companies – a style that has led to strong performance.
The team is structured in such a way that it can focus on the areas where it can add most value, and invest early enough in a stock – and with enough conviction – to maximise the investment opportunity.
*Source: FE Analytics, total returns in pounds sterling, 3 November 2006 to 4 November 2026
**Source: FE Analytics, total returns in pounds sterling, 1 January 2025 to 31 December
***Source: Janus Henderson, 28 October 2026
****Source: FE Analytics, total returns in pounds sterling, 1 February 2024 to 5 November 2026
^Source: FE Analytics, discrete calendar year performance in pounds sterling
^^Source: fund factsheet, 30 September 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Main image: change, chris-lawton-5IHz5WhosQE-unsplash
