What you need to know
- US tariffs, market fundamentals and geopolitics have caused a change in leadership in 2025: European and UK equities are now outperforming their US counterparts due to improving corporate earnings relative to expectations, more attractive valuations and newly announced government spending including for defence and infrastructure. And, while US tariffs are a downside risk, a ‘peace dividend’ should the Russia-Ukraine war end is an upside risk. Therefore, we have decided to increase our exposure to European and UK equities to a tactical overweight.
- To fund this trade, we’ve sold some US equities, as valuations are demanding, and policy uncertainty is higher. We still think innovation in the US is continuing apace, and AI-related themes remain compelling from a medium-term perspective. And we maintain our overweight on a US equal-weighted equity index giving greater emphasis to attractively valued sectors that might benefit from US policies of stimulus and protection, from industrials to financials. So, despite reducing US equities, we keep a slight overweight.
Daniele Antonucci
Daniele Antonucci
Daniele Antonucci is a managing director, co-head of investment and chief investment officer at Quintet Private Bank. Based in Luxembourg, he jointly chairs the investment committee, owning decision-making and performance outcomes. As head of research, Daniele oversees the investment strategy feeding into portfolios and the teams of specialists across asset classes and solutions, ranging from macro, fixed income and equities to funds, alternatives, and structured products and derivatives. He leads the network of chief strategists, communicating the house view on the economy and markets to financial advisors, clients and the media.
Prior to joining Quintet in 2020 as chief economist and macro strategist, Daniele served as chief euro area economist at Morgan Stanley in London. He completed the High Performance Leadership Programme at Saïd Business School, University of Oxford, holds a master’s degree in economics from Duke University and graduated from the Sapienza University of Rome. Featured in The Economist and Financial Times and often quoted in the generalist press, he’s a published author in finance and economics journals and investment magazines, a frequent speaker on CNBC and Bloomberg TV, and an ECB Shadow Council member.
Never a dull moment
As I have presented our 2025 market outlook across Europe in the first couple of months of the year, together with members of our Investment Committee and other senior investors and strategists, two words have dominated our discussions with clients: uncertainty and volatility.
The news flow has indeed been more challenging to navigate; markets are quickly rotating in reaction to a fast-changing narrative. But rather than overreacting to the incoming news, it’s vital as investors that we stay composed. Our baseline scenario of slowing but positive growth and falling interest rates is playing out; there have just been a few unexpected events along the way.
Europe leading, US lagging
So far in 2025, US equities have been battling against headwinds – notably tech valuation concerns kicked off by the launch of DeepSeek, the Chinese AI company that grabbed the headlines a few weeks ago. European equities, on the other hand, have been performing strongly despite the threat of US tariffs and uncertainty around the German election. However, European economic and corporate activity had been stagnating at the start of the year, so the rally lacked the fundamental underpinnings that we look for when investing. But fast-forward a few weeks and things look different. This is where a key pillar of our investment philosophy comes into play: active portfolio management.
A few days ago, the European Commission unveiled the ReArm Europe initiative. The plan proposes suspending EU budget rules to allow member states to increase defence spending in response to escalating geopolitical tensions, potentially unlocking up to €650 billion over four years. Plus, following the recent election, Germany too is in the process of reforming its fiscal framework and debt brake rules, to fund extra spending in defence, infrastructure and economic reform. This renewed fiscal impulse and integration effort was the missing piece of the puzzle when we debated buying European and UK equities last month. We now believe the fundamentals behind a more sustainable rally are in place, with the added fiscal support and corporate earnings set to improve.
Don’t test the depth of the river with both feet
If (and it’s a big if) the war between Russia and Ukraine ends, the ensuing ‘peace dividend’, in the form of lower uncertainty and energy costs, along with reconstruction opportunities, could support Europe too. That said, tariffs are still a risk for all European countries. They also pose a risk to the US. President Trump has already softened the tariffs he imposed on Canada and Mexico only a few days after they were implemented. So, it seems that Trump may be worried about overplaying his hand when it comes to tariffs, which could spell good news for Europe. The uncertainty around Trump’s tariff and fiscal policies – and their effect on inflation and growth – is one of the reasons why we’re reducing our US equity position.
At the end of 2024, we bought an equal-weighted US equity index. This index emphasises industrials and financials that could benefit from Trump’s proposed policies while reducing the relative exposure to tech stocks, which have underperformed this year. We’ll keep this investment unchanged and instead sell part of our other US equity positions. The overall result is that we’re not exiting our US equity overweight entirely.
Capturing opportunities and mitigating risks
We also hold an ‘insurance’ instrument that appreciates when European equities fall (and a similar one that appreciates when US equities fall), which expires later this month. We have three options on what to do with this. The first is selling it, but this would offer little to no return uplift due to the positive performance of European equities this year. The second is extending it beyond its March expiry date, but this wouldn’t be in line with our new, more positive view on European equities. The final option, which is what we’ve decided to do, is to keep it until expiry. This allows us to partially protect portfolios should an unexpected market reversal happen in the near term.
I’ve said before that 2025 will be a year of balancing optimism with pragmatism, and the first couple months of the year have shown that. Let me say a few words on another key pillar of our investment philosophy: seeking to deliver wealth protection and growth. This means staying diversified across regions and asset classes without taking material risks is key to navigating such an environment. With that in mind, in addition to the equity positions outlined above, we’re sticking with our existing investments in short-dated and inflation-linked bonds, gold and commodities. These aim to protect portfolios against the uncertainty and volatility that are likely to stay with us for some time.
This note contains an overview of our market views, what we are watching, and our portfolio strategy. Any reference to portfolio positioning relates to our flagship discretionary portfolios. Clients with bespoke or advisory portfolios should consult their Client Advisor for the latest update on your portfolio.
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Information correct as of 10 March 2025.
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