3 surprising market winners in 2025
Even before tariff-related volatility, DeepSeek AI's launch clouded the major technology theme that powered the market in 2023 and 2024, as AI stocks entered a bear market in March.
But there have been equity gains to be had in 2025. When I look at year-to-date returns across indexes, I notice a few surprising stars: European stocks, Latin America, and real estate investment trusts.
The common thread that connects the three? All had been underperformers in prior years.
European stocks have been made great again
Morningstar's European stock index is riding high this year, as the macroeconomic environment has been improving. The financial-services sector, in particular, is a key beneficiary.
Then there's Germany's newfound interest in deficit spending and the continent's focus on military self-sufficiency, spurred by the Donald Trump administration.
US tariff announcements caused sharp selloffs in Europe, but the recovery has been V-shaped. A weakening US dollar has magnified European equity gains for unhedged US investors. It doesn't hurt that the European Central Bank and the Bank of England have actually been cutting interest rates.
My research and investment colleagues have called Europe 'the most attractive developed-markets region globally,' making European stocks worthy of inclusion in a diversified portfolio.
Latin America: Can the revival last?
South of the US border, stocks are rallying.
Morningstar's Latin American equities index is up more than 22% so far in 2025, thanks to Brazil, Mexico, and the smaller markets of Colombia and Chile. Here, too, a weakening dollar has boosted equity returns for unhedged US investors. This marks quite a turnaround from losses of more than 25% in US dollar terms in 2024.
Brazil, for its part, faces serious fiscal challenges. In Mexico, sentiment was dented by election results on both sides of the border.
Coming into the year, my colleagues on Morningstar's research and investment team identified Brazil as the highest potential global equity market for the coming 10 years. Latin American stocks are volatile but could hold more upside.
REITs, especially those outside the US, outperform
Real estate investment trusts are also up double digits this year outside the US. Property sectors in many geographies are vibrant, bolstered by low or falling interest rates.
What about the US? The Morningstar US REIT Index is well behind the Morningstar Global Markets ex-US REIT Index in 2025, but it's in positive territory, ahead of the broad US equity market. US interest rates that appear to be staying higher for longer are seen as a negative for real estate. That said, REIT yields are attractive, and property is a 'real asset' that can act as an inflation hedge.
Diversification assures exposure to unloved asset classes
US mega-cap technology-oriented stocks did so well for so long that many investors thought they were the only game in town. Coming into 2025, it was hard to envision how the Magnificent Seven could ever be knocked off their perch. The rise of artificial intelligence, widely viewed as 'bigger than the internet,' seemed inexorable. No one saw DeepSeek AI coming, and few predicted the degree to which tariffs would disrupt.
Gravity is a powerful force in investing, too. US stocks, especially on the growth side of the market, posted returns in 2023 and 2024 that far exceeded their historical levels. Their losses in 2025 can be seen as a reversion to the mean, or a return to long-term averages.
The surprising winners of 2025 show that investment performance is dynamic. Contrarian bets can be profitable, though they can also take time to pay off. Investors who diversify by geography, style, and market capitalization are also well placed to benefit from leadership change.
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Dan Lefkovitz is a strategist for Morningstar Indexes
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