An increasing share of European equity Ucits assets is being allocated to US stocks, driven by the outperformance of the US stock markets, according to the European Fund and Asset Management Association (Efama).
According to data from the representative association for the European investment management industry, by the end of 2023, 44.6% of the equity Ucits portfolio was invested in US assets, a rise from 19.2% in 2012. This trend is unique to Europe, where equity funds domiciled in the EU and the UK had only 27% and 29% of their portfolios invested in local stocks, respectively. In contrast, equity funds in the US and Asia-Pacific regions held 78% and 84% of their portfolios in local stocks.
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According to the researchers, several factors contribute to this “lower home bias” among European investors. These include positive views on cross-border investments, the influence of financial advisers, the development of global fund platforms, the relatively small size of EU stock markets, and enthusiasm for leading US technology companies.
The robust performance of US markets, which has driven increased allocation of equity assets to US stocks, is attributed to a combination of factors. These include strong population growth, significant spending on research and development, substantial fiscal stimuli, and lower energy prices. Consequently, economic growth in the US has outpaced the EU in recent years.
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To attract capital back to the EU economy, Efama emphasised the need to unlock the potential of the single market, create an effective capital markets union, enhance the competitiveness of the EU economy and its firms and reorient the Retail Investment Strategy.
Bernard Delbecque, senior director at Efama, commented: “A decisive shift in EU policies, particularly competition and industrial policies, is required to enhance investment opportunities, boost the valuation of Europe-based companies in global stock indices, and increase asset owners’ investments towards EU companies. Once asset owners foresee more promising prospects in the EU, they will increase their investments in the region, thereby supporting the financing of the green and digital transitions.”
