Trump could make Europe's stockpickers great again

Reuters

20-05-2025

LONDON, May 20 (Reuters Breakingviews) - Donald Trump could make Europe's stockpickers great again – or, at least, less bad. The U.S. president's tariff war and a defence boom could see more money shift into European stocks and active funds. Groups like Schroders (SDR.L), opens new tab, DWS (DWSG.DE), opens new tab or Aberdeen (ABDN.L), opens new tab, which faced years of competition from passive funds and U.S. assets, may start to look cheap.
Active managers' plight was partly down to the relentless growth of passive funds, which stole the active players' market share and drove down fees. European active funds saw more investor money flow out than in during 18 out of 24 months in 2022 and 2023, according to Morningstar data. That wasn't just because clients could get higher returns from cash: passive vehicles lost assets in just two of those months.
One potential shift is Trump's tariffs, which have tainted the U.S. reputation for sound policymaking. If these cause investors to scale back allocations to U.S. assets, the beneficiaries may be European companies and bonds. The region is likely to be more politically stable, have more accommodative central banks, and a more generous fiscal stance than the U.S., Deutsche Bank analysts note. These should support asset prices, investor flows and hence manager fees.
Second, the shifts triggered by Europe's need to boost spending, as well as U.S. tariff fallout, may naturally favour more nimble stock and bond pickers over index funds. The artificial intelligence boom entrenched the position of the so-called 'Magnificent 7' big tech giants. In Europe, the defence boom has helped relative minnows, giving those who overweight them a better chance of beating the index. None of the 10 best performing shares in the STOXX 600 (.STOXX), opens new tab over the last year is even ranked in the index's top 10 groups by market value, according to Breakingviews analysis using LSEG data. Rheinmetall (RHMG.DE), opens new tab, its second-best performer with a 235% return before dividends, sits in 45th place.
So far, the data supports the idea of a mild renaissance. Active equity funds have pulled in more money than clients have withdrawn every month since January 2024, Morningstar data shows, the longest such run since the post-pandemic recovery. And rebalancing away from the U.S. has seen European bond and equity funds pull in more money than U.S. ones since April, EPFR data shows, even though bonds have benefitted more than equities.
Even in this year's boom, passive funds still garnered over half the sector's net new money. Still, there's very little sign of any recovery priced in to asset manager stocks. On average, DWS, Schroders, Amundi (AMUN.PA), opens new tab and Aberdeen are trading at just under 12 times forward earnings, marginally below the average since the start of 2020. Fund managers could yet be a MEGA hit.
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