There’s a strong case to be made that the lofty premium U.S. stocks enjoyed over the past decade was partly due to the country’s relative political and regulatory stability.
American-style capitalism, with its deep capital markets, shareholder-first culture and consistent legal protections, has long been a magnet for global business. Studies have even shown that foreign firms with dual listings in the U.S. tend to command a valuation premium.
But recent developments are starting to shake that confidence. Notably, President Donald Trump’s sweeping tariff policies have raised concerns, prompting many allies — particularly in Europe — to question the reliability of the U.S. as both a trade partner and military ally.
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While this paradigm shift has introduced significant volatility, European markets have held up better than most. As of April 11, the CBOE Volatility Index (VIX) was at 37.6, up 116.5% since the start of the year. The S&P 500 has fallen 8.8%, while the EURO STOXX 50 Index is down just 1.7%.
“One of the main attractions of European equities at the beginning of the year was their near-record valuation discount to U.S. equities,” explains Arne Noack, regional investment head of Xtrackers, Americas, at DWS Group. “Even after this catch-up, equity indices of this region still trade at a price-to-earnings (P/E) ratio of around 13x, compared to 21x of the S&P 500.”
Much of that resilience reflects a flight to safety as global investors look for more stable opportunities outside the U.S., with attention now focused on the European stock market.
“Accommodative European monetary policy as well as the prospect for significant German fiscal stimulus helped create a catch-up rally in European equities,” Noack says.
One major contributor to Europe’s momentum has been the performance of its publicly traded military contractors. Their shares have rallied in response to growing calls across the continent to build defense independence from U.S. suppliers.
Disagreements with the Trump administration over continued support for Ukraine have only amplified that urgency. With the European Commission rolling out its ReArm Europe Plan and Readiness 2030 initiative, over 800 billion euros ($909 billion) in committed defense spending is now set to flow into the region.
That said, it is not too late for investors to reconsider a portfolio that may be tilted too heavily toward U.S. stocks. Thanks to a growing lineup of Europe equity exchange-traded funds (ETFs), exposure to the region is more accessible and cost effective than ever — whether you want broad coverage or targeted country-specific exposure.
“Even with their recent outperformance, DWS still sees additional potential upside,” Noack argues. “Even though some sectors have already become relatively expensive, we believe that continued reallocations from the U.S. to the European market could continue to drive markets.”
Here are seven of the best Europe ETFs to buy in 2025:
| ETF | Expense ratio |
| SPDR EURO STOXX 50 ETF (ticker: FEZ) | 0.29% |
| Vanguard FTSE Europe ETF (VGK) | 0.06% |
| iShares Core MSCI Europe ETF (IEUR) | 0.09% |
| Xtrackers MSCI Europe Hedged Equity ETF (DBEU) | 0.45% |
| Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ) | 0.45% |
| WisdomTree Europe Hedged Equity Fund (HEDJ) | 0.58% |
| Franklin FTSE Switzerland ETF (FLSW) | 0.09% |
SPDR EURO STOXX 50 ETF (FEZ)
To track the EURO STOXX 50 Index mentioned earlier, FEZ is the most popular option, with just over $4 billion in assets under management. It holds a concentrated portfolio representing around 60% of the free-float market capitalization of the broader EURO STOXX Total Market Index. FEZ also has an options chain, allowing investors to buy and sell calls or puts for enhanced exposure or downside protection.
The main drawback is cost — at a 0.29% expense ratio, it is relatively expensive for such a focused index strategy. Investors interested only in Europe’s largest blue-chip names may prefer to buy top holdings like SAP SE (SAP), ASML Holding NV (ASML), Siemens AG (OTC: SIE.DE) or LVMH Moet Hennessy Louis Vuitton SE (OTC: MC.PA) directly via American depositary receipts or through currency conversion.
Vanguard FTSE Europe ETF (VGK)
VGK is a much more diversified option than FEZ, tracking the FTSE Developed Europe All Cap Index. It covers a broad range of markets, including Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK — which, while no longer part of the European Union post-Brexit, remains included.
Unlike FEZ, VGK holds more than 1,200 equities and includes small- and mid-cap companies in addition to large caps. It’s also significantly cheaper, with an expense ratio of just 0.06%. Unlike some index ETFs, VGK uses a full replication approach, meaning it buys all the securities in the index in their exact proportions rather than selecting a representative sample. This minimizes tracking error.
iShares Core MSCI Europe ETF (IEUR)
IEUR is part of iShares’ low-cost “core” lineup designed to serve as foundational portfolio building blocks. It carries a 0.09% expense ratio — slightly pricier than VGK but still very competitive. The fund tracks a different benchmark, the MSCI Europe Investable Market Index, which covers just over 1,000 small-, mid- and large-cap European stocks using a market-cap-weighted methodology.
IEUR can also serve as an effective tax-loss harvesting partner for VGK. While it has similar top holdings and closely aligned historical performance, the two ETFs track different benchmarks, meaning they’re not considered substantially identical by the IRS. This helps investors avoid violating the wash sale rule when tax-loss harvesting. It is also very liquid, with a low 0.03% 30-day median bid-ask spread.
Xtrackers MSCI Europe Hedged Equity ETF (DBEU)
“DBEU has broad European exposure, covering large- and mid-cap companies from the United Kingdom, Switzerland, the Nordic region, as well as the countries from the European Monetary Union, also referred to as the eurozone, such as France, Germany, Italy, Spain and others,” Noack explains. This ETF tracks the MSCI Europe U.S. Dollar Hedged Index for a 0.45% expense ratio.
Don’t let the higher expense ratio deter you — you get what you pay for, and in this case, it’s DBEU’s built-in currency hedging. This feature helps mitigate the impact of a strengthening U.S. dollar, which can otherwise drag down returns for unhedged international investments. Historically, this has allowed DBEU to outperform comparable unhedged European equity ETFs during periods of dollar strength.
[Read: How to Pay Taxes on Investment Income]
Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ)
“Distinct from DBEU is DBEZ, which includes large-, mid- and small-cap companies from the eurozone only,” Noack explains. “This distinction can lead to important differences in weights: The U.K. and Switzerland make up a combined 35% of DBEU and are not included at all in DBEZ.” However, as with DBEU, DBEZ is also protected from a strong U.S. dollar via a currency hedge.
“This differentiation can also lead to deviations in sector exposures,” Noack says. “Only banks and insurance are shared in the top five industry groups of the two portfolios, and DBEU has a higher weight in pharmaceutical, food, and oil and gas, whereas DBEZ top weights include semiconductors, electrics, and aerospace and defense.” DBEZ charges a 0.45% expense ratio, the same as DBEU.
WisdomTree Europe Hedged Equity Fund (HEDJ)
An alternative to traditional market-cap-weighted European equity ETFs is HEDJ. Like DBEU and DBEZ, it uses currency hedging to protect against a strong U.S. dollar, but its benchmark is more selective. HEDJ tracks the WisdomTree Europe Hedged Equity Index, which includes only dividend-paying companies that derive at least 50% of their revenue from outside Europe, which introduces an exporter tilt.
Rather than weighting by market capitalization, HEDJ also weights holdings based on the total cash dividends paid. Individual stocks are capped at 5%, and sector exposures are capped at 25% to ensure diversification. Despite a higher 0.58% expense ratio, HEDJ has historically outperformed many of its peers on a risk-adjusted basis, earning a five-star rating from Morningstar.
Franklin FTSE Switzerland ETF (FLSW)
Investors looking for European exposure with reduced geopolitical risk may find Swiss equities an unorthodox but appealing option, given the country’s long-standing neutrality, stable currency, and lack of membership in both the European Union and NATO. These are all factors that make Switzerland highly unlikely to be drawn into future conflicts. Affordable access comes via FLSW at a 0.09% expense ratio.
This ETF owns 52 stocks represented by the FTSE Switzerland Capped Index. Its top holdings include blue-chip names like Nestle SA (OTC: NESN.SW), Roche Holding AG (OTC: ROG.SW), Novartis AG (OTC: NOVN.SW) and UBS Group AG (OTC: UBSG.SW). However, the fund is relatively small, with just over $48 million in assets, putting it below the $50 million threshold often seen as the minimum for long-term ETF viability.
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7 Best Europe ETFs to Buy for 2025 originally appeared on usnews.com
