Europe's Potential Place in a Global Portfolio

Years of broad earnings gains and sustained U.S. equity leadership have rewarded investors—but they have also coincided with sharply higher U.S. market concentration and valuations. At the end of September, information technology and communication services represented 50% of the S&P 500^® Index, while its 10 largest companies accounted for 39% of the index's total market capitalization.¹ Both figures are approximately double 2016 levels, while valuations are historically high across most measures.

If your wealth has grown alongside the U.S. market's expansion, now might be a prudent time to assess whether your portfolio still aligns with your broader wealth objectives. Should that review reveal a need for greater diversification, Europe's improving earnings and differentiated market structure may merit consideration—not as a tactical call, but as a way to broaden your potential sources of risk and return. A disciplined review can help frame the decision.

• Know what you own. Review holdings across accounts and entities for U.S. concentration, direct and indirect European exposure, and unintended overlap.
• Define the purpose. Consider whether Europe's sector, currency, income, and economic characteristics might complement your existing investments, goals, and risk tolerance.
• Choose the approach. Evaluate account location and vehicle choice in light of taxes, liquidity, customization, transparency, and cost.
• Weigh the risks. Consider the potential effects of currency shifts, geopolitical events, energy prices, regulation, and uneven country or sector performance.

Earnings have improved. Earnings growth supports stock returns over time, making Europe's recent rebound relevant to the investment case. After a period of negative or modest growth, the STOXX Europe 600 returned to double-digit year-over-year earnings growth in the first half of 2026.²

Before adding European stocks, map the exposure already embedded across your financial life—not just in a single brokerage account. Taxable and retirement accounts, trusts, donor-advised funds, global funds, business interests, and legacy positions may each contribute direct or indirect exposure. At the same time, years of U.S. outperformance may have shifted your equity allocation further toward U.S. markets than your long-term plan intends.

Look through pooled vehicles as well as direct holdings, and consider concentrated stock positions or private businesses whose revenues, suppliers, or risks may already be tied to Europe. This broader inventory may reveal unintended overlap, concentration that isn't immediately apparent, or more European exposure than an account-by-account review might suggest.

The objective is to identify a portfolio need—not to pursue a region solely because its outlook has improved. Depending on the starting point, the resulting portfolio decision might be to reduce a concentrated position, restore target weights, broaden an existing international allocation, or establish a deliberate European position.

A European allocation may add sector, currency, income, and economic characteristics that differ from those of the U.S. market. The relevant test is whether these differences would serve a defined purpose—such as complementing broad international holdings, expanding exposure beyond a narrow group of U.S. market leaders, or adding sources of portfolio income—while remaining consistent with your spending, liquidity, tax, and wealth-transfer needs.

Consider both the potential allocation size and what it would replace. A modest diversification position might function differently from a substantial regional overweight. Either approach can lose value, and diversification does not eliminate the risk of loss. Establishing the allocation's intended role and risk budget in advance is therefore important.

For affluent investors, where an investment is held can make a difference. Non-U.S. dividends may be subject to foreign tax withholding, while funds and separately managed accounts may differ in turnover, distributions, and tax-management flexibility. Consider how each investment vehicle aligns with the account's tax treatment, liquidity needs, and purpose. Relevant factors might include income needs, embedded gains, potential eligibility for foreign tax credits, estate-planning objectives, charitable intent, and access to funds. Your financial advisor may be able to help coordinate the analysis with tax, estate, and charitable-planning professionals to evaluate trade-offs across your taxable and retirement accounts, trusts, and charitable vehicles.

If your analysis ultimately supports an allocation, select an approach suited to its objective, size, and account location. Europe is not a uniform market: countries, sectors, currencies, regulations, and company fundamentals may diverge. These differences make benchmark selection, currency treatment, taxes, cost, and customization important when comparing broad index exposure with a more selective active approach.

• Index ETFs and mutual funds may provide broad market exposure with limited customization.
• Active mutual funds may emphasize quality, valuation, income, or risk management, but may also introduce manager-specific risk and different cost considerations.
• Separately managed accounts may offer greater transparency, customization, and tax-management flexibility, often with higher minimums and additional oversight.
• Currency-hedged strategies seek to reduce the effects of exchange-rate movements, while unhedged strategies allow currency changes to increase or decrease U.S.-dollar returns but may introduce greater volatility.

European stocks also carry risks that may differ from those of U.S. holdings. Slower global growth would likely place downward pressure on earnings, particularly among industrial and consumer discretionary companies. A stronger U.S. dollar could reduce U.S.-dollar returns on unhedged investments. Geopolitical tensions, energy-price shocks, regulatory changes, differences in accounting and disclosure standards, and uneven economic conditions across countries might also affect performance. These risks reinforce the need to size an allocation deliberately and assess it alongside a portfolio's other exposures.

Europe's relevance ultimately depends less on recent performance than on the purpose an allocation would serve within your wealth strategy. Improving earnings, lower relative valuations, and a differentiated market mix may justify a review, but they don't make an allocation appropriate for every investor. Start by reviewing your existing exposures, what a new position might add or replace, and how it could affect risk, liquidity, taxes, and long-term planning goals. Your financial advisor should be able to help assess whether such an exposure might support these goals and, if so, how it might be sized, located, and implemented.

• What do you own today? Review investments across accounts, trusts, funds, and business interests for concentration, overlap, and embedded European exposure.
• What purpose could Europe serve? Consider whether it might complement existing holdings, diversify beyond U.S. market leaders, broaden sources of portfolio income, or advance another long-term goal.
• How would you implement an allocation? Evaluate allocation size, account location, vehicle choice, taxes, liquidity, and risk across your full financial picture.