🧠 Is Europe the answer to US uncertainty?

Over €46 billion shifted towards Europe in 2025

Author

Nessrine Slimani
April 02, 2026

In 2025, more than €46 billion flowed into European ETFs at Amundi, a massive rotation away from the United States, driven by the political and economic instability of the Trump administration.

On one hand, this is good news: European savings are now funding the growth and innovation of companies within the region, rather than those across the Atlantic.

But on the other hand, looking at the historical record, Europe's main index has underperformed the US index by 4.8 percentage points per year over the last 20 years.

If you had invested €10,000 in 2005, you would have today:

  • €77,000 if you had invested exclusively in the S&P 500*

  • €34,500 if you had invested exclusively in the STOXX Europe 600*

  • €55,750* if you had split your investment 50/50 between the two

Past performance is not a guarantee of future results, as explained in detail in this edition. These indices are used for illustrative purposes only and do not constitute investment recommendations.

In today's issue, we explore the following questions:

  • Why has Europe underperformed, and is that starting to change?

  • Should you reconsider your allocation if you are investing for the long term?

  • What criteria should you use to calibrate your exposure?

Why Europe has underperformed over the last 20 years

Annualised returns show a significant gap between the major stock market indices:

Index

Annualised return in EUR (over 20 years)

S&P 500

10.9%

MSCI World

8.5%

Stoxx Europe 600

6.4%

Euro Stoxx 50

5.6%

This gap comes down to two things: the explosion of American tech giants on one side, and Europe's structural weaknesses on the other.

These weaknesses were documented in September 2024 in the The Future of European competitiveness report commissioned from Mario Draghi, former President of the European Central Bank (2011–2019) and former Italian Prime Minister.

The Draghi Report identifies an investment shortfall of 4% of European GDP, that is, €800 billion per year needed to catch up with the United States and China.

It diagnoses three main weaknesses:

  1. A fragmented market: 27 different tax systems, 27 national regulators. This results in cross-border costs that are 20 to 30% higher than in the US, and European companies that remain on average 10 times smaller than their American counterparts.

  2. Too little investment: Europe invests 2 to 3% of its GDP, compared to 4 to 5% for the United States.

  3. No technology giants: Without an equivalent to the Magnificent 7- which account for 30 to 40% of the S&P 500 - Europe remains dominated by cyclical sectors: banking, luxury goods, financial services, and industry.

The diagnosis is severe, but Europe is now committing the resources to address it.

  1. One of the first signals is a historic shift in Germany: in 2025, the country amended its constitution to loosen the "debt brake" that had constrained public spending since 2009, freeing up as much as €1 trillion in investment over ten years. This is a significant change in approach for Europe's long-standing champion of fiscal discipline.

  2. The second signal is energy-related: the REPowerEU plan mobilises €300 billion between 2022 and 2027 to break Europe's dependence on Russian fossil fuels, a dependency that has weighed on European competitiveness since the war in Ukraine.

  3. The third is industrial and technological: Europe is committing €150 billion through SAFE to rearm and reindustrialise, while the European Investment Bank is deploying €70 billion between 2025 and 2027 specifically for technological innovation, with the ambition of mobilising €250 billion in total investment.

In total, this represents nearly €1.5 trillion in committed or ongoing investment. 
Nothing guarantees that this will translate into stock market catch-up, but the political will and the financial firepower are clearly there.

Historical data already reflects all past crises

In 1987, Japan represented 40% of the MSCI World index, compared to just 6% today. This decline is already embedded in the MSCI World's historical performance, which, despite that collapse, delivers an annualised return of 8.5% over 20 years and 8.4% over 40 years.

Today, it is the United States that represents 60 to 70% of the MSCI World.

This concentration comes alongside growing political uncertainty, with an unpredictable US president controlling the world's leading commercial and military power and raising fears of erratic decision-making.

The Japanese example offers three useful lessons:

  • If you are passively investing in a global ETF for the long term, there is reason to feel reassured: the index absorbed Japan's collapse without lasting damage and mechanically rebalanced as a dominant region declined and others gained weight.

  • If, however, you need access to your capital within 5 to 10 years, the current concentration of US assets in the index deserves careful thought. For example, a sharp fluctuation in the dollar at the wrong moment could significantly reduce the value of your portfolio in euros. A prolonged downturn precisely when you want to withdraw your savings could jeopardise your plans.

  • If you are concentrated in a US national index such as the S&P 500 or the Nasdaq, the question of your investment timeline also applies: a partial reallocation towards other geographical regions or asset classes might be worth exploring, depending on your goals and their time horizon.

Reallocating towards European companies means investing in euros in companies listed in euros, which reduces currency risk and lowers your exposure to the US in the event of a prolonged crisis.

But does investing in Europe come without risk? No.

If you decide to reallocate part of your portfolio, pay close attention to the tax rules, which vary depending on the account type you use.

One alternative to delay capital tax is to direct your new contributions towards new positions rather than selling existing ones. This allows you to gradually rebalance your portfolio without triggering tax.

A few European indices worth knowing

If you are considering European index ETFs, here are the main indices to help you navigate the landscape.

Take the time to understand them properly before acting, as the differences matter.
This is not investment advice, and other European indices may better match your values (responsible investing, dividends, specific sectors).

Index

Countries

No. of companies

20-year return

Key characteristic

Stoxx Europe 600

17 countries (Eurozone + UK + Switzerland)

600

6.4%

The most diversified (large, mid & small cap)

Euro Stoxx 50

Eurozone only

50

5.3%

The 50 largest Eurozone companies (concentrated large cap)

MSCI Europe

~15 developed countries

~450

7.9% (over 40 years)

Institutional standard (large & mid cap)

MSCI Europe Small Cap

~15 developed countries

~900

7.0%

Small caps, more volatile

A word of caution on national indices (CAC 40, DAX, FTSE 100): they concentrate your exposure in a single country, amplifying the risks tied to local political and economic conditions.

A French crisis affects all CAC 40 companies simultaneously, whereas a pan-European index can offset difficulties in one country through the performance of others.

The rotation towards Europe: signal or solution?

The real question is not simply Europe or the US, since both can face serious difficulties, but rather: what am I trying to protect, and over what time horizon?

A few questions to help you think it through and make the right decisions:

  • When will I need this money?

  • Am I looking to maximise returns, or to reduce a specific risk (currency, concentration, volatility)?

  • Does shifting my geographical allocation actually solve the problem I have identified, or do I need a different asset class to serve that purpose?

Take care,
Nessrine

P.S. What if we met at the Eyrolles bookshop in Paris? :)
Registration link -Thursday 9 April 2026, 6:00 pm to 8:00 pm

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Articles, research and studies consulted for this edition:

Important reminder: This content is for educational purposes only, not investment advice. Make sure to do your own research before getting started. And remember that all investments, ETFs included, carry risks of capital loss.

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