At a media event in London this month, Guinness Global Investors discussed why it believes that European equities are more attractive than US equities, and assessed the outlook for the European market as well as top stock picks

Will James (pictured) at London-headquartered Guinness Global Investors highlighted that European equities are still cheap compared with the US equities, and suggested that it is a good time to start investing in them.

“European equities remain at a discount to US equities,” James told journalists. “Europe also appears to be far better positioned than the US in terms of growth,” he continued. “Inflation appears to be under control in Europe and it has room to keep cutting interest rates if required, while question marks remain as to what will happen in the US.”

James emphasised how Europe has made progress on the energy front, with multi-year investment in renewables starting to pay off. Europe and Germany have also recently hiked defence spending.

The EU's “Rearm Europe” package involves the activation of the national safeguard clause of the Stability and Growth Pact, enabling EU countries to increase their defence spending by an average of 1.5 per cent of GDP, or €650 billion ($753 billion) which could be released over the next four years. It also entails a "new instrument" to provide €150 billion in loans to member states to finance joint defence investments in pan-European capabilities. Berlin also proposes to exempt defence from a budget restriction; it will launch an off-budget infrastructure fund of €500 billion over the next 10 years. Other European nations and UK Prime Minister Keir Starmer are taking similar action.

Defence and security are underrepresented in many portfolios and have faced decades of underinvestment in Europe. European banks such as ABN AMRO and wealth manager WisdomTree, for example, have recently ramped up defence investment efforts, to capitalise on the new investment landscape.

Guinness European Equity Income Fund
James, who co-manages the Guinness European Equity Income Fund, said that European equities are doing well. The fund, which has outperformed the index over a one, three, five- and 10-year period, has a portfolio of 30 stocks which concentrate on firms with persistent high returns on capital and strong balance sheets.

Key sectors include financials, industrials, consumer staples and healthcare. Top holdings include Universal Music Group, Unilever, Danone, Nestle, and Nordic insurance group Sampo Oyi. Other top holdings are Italian bank Banca Generali, French asset manager Amundi, and French multinational Essilor Luxottica which produces optical lenses for glasses and sunglasses. Danish pharmaceutical company Novo Nordisk is another top holding, which excels in diabetes care and has developed a new drug to fight obesity, as well as Finland’s Kronecares Oyi specialising in overhead cranes.

The fund is heavily exposed to France, followed by Switzerland, Finland, Germany, the Netherlands, Italy and Denmark.    

His views are echoed by a number of other wealth and asset managers following the fallout from US tariffs and shifts in equity markets since the early spring. German asset manager DWS, for instance, also prefers European equities over the US, due to the diversification aspect, cheaper valuations, and the higher share of cyclical corporations in Europe. See more commentary here.