Europe was 2025's best-performing major market, with the EuroStoxx returning 32.2% in sterling terms. This year it has swung to the opposite extreme, up just 9.8% year to date and lagging every other major index, as inflation concerns, sluggish growth and questions over the durability of defence spending have weighed on sentiment.
Performance of major indices over the past year
Source: FE Analytics
The three largest active funds in the IA Europe Excluding UK sector have taken very different routes through that volatility, but which should investors have the most interest in?
BlackRock European Dynamic is the biggest of the three at £4.8bn, around £1bn ahead of Fidelity European (£3.8bn) and almost £2bn in front of Liontrust European Dynamic (£2.9bn).
Of the three, the BlackRock fund has been by far the worst performer, up just 20.7% over the past five years.
Ben Yearsley, director at Fairview Investing, said this is because the fund, managed by Giles Rothbarth, has a quality-growth approach that has been out of favour in recent years.
The fund is 28.9% invested in financials and has 28.2% in industrials, while its 3.9% exposure to French aerospace and defence company Safran contributes to it having the most direct defence exposure of the three names – a theme that a number of managers have been finding appealing and has done well in the recent past.
“[Rothbarth’s] style has been out of favour in recent years but I'd back Giles to return to favour,” said Yearsley, noting that some of his clients hold the fund and he remains “comfortable” with them holding on for a market rotation.
The best performer of the trio has been Liontrust European Dynamic, which has easily bested its rivals, returning 85.2%.
Performance of fund against index and sector over 1yr
Source: FE Analytics
Joe Richardson, discretionary investment manager at Dennehy Wealth, said it had “done the job” for investors over this time.
“Yes, it's concentrated and leans into banks and materials rather than defence, but that's where the outperformance has come from and our process rewards what's working,” he said.
However, he noted that his firm uses an altogether different European fund: Schroder European Recovery. He said this provides access to the “genuine value” on offer in Europe. Typically, however, the firm selects funds based on momentum.
“If defence names are doing well, we'll end up owning them because the funds carrying them are the ones with momentum, generally not because we've decided defence is the trade in Europe,” he said.
Although Liontrust has been the best performer over the past five years, Jonathan Moyes, head of investment research at Wealth Club, owns Fidelity European in the firm's portfolio service. It has gained 38.3% over half a decade.
“We like the long-term, patient, quality dividend growth-focused approach,” he said, adding that he likes he portfolio management team, even after the announced retirement of lead manager Samuel Morse, which he described as “signposted well in advance”. Indeed, the manager is not due to leave until October 2027.
Yearsley said he was unconvinced by either of the other options, noting that he doesn’t own Liontrust funds because the business is “too messy”, while the retirement of Morse “means there needs to be a re-evaluation”.
Like Richardson, he chooses to look elsewhere for core European exposure, choosing to allocate through the value-tiled M&G European ex UK fund.
Lastly, Andrius Makin, associate portfolio director at Killik, said he would also choose to go with a different fund. The firm’s managed portfolio service maintains “a decent allocation to Europe but favour the UK”, as it's a market that analysts expect to deliver “broadly similar earnings growth at a less demanding valuation”.
He added: “Less currency risk is also helpful in my view.”
The main European exposure is through the Legal & General European Index Trust, which gives them exposure to large and mid-cap names across developed Europe with some allocation to emerging European markets at a low cost.
“I am also keeping an eye on BlackRock Greater Europe, as I like the disciplined investment process and bias to quality names. The discount looks attractive relative to long-term averages, but the portfolio is still a little too highly valued for me. If that changes then it's one I would be interested in adding to portfolios,” he concluded.