Historically, the iShares Europe ETF (IEV) has struggled to keep pace with its American counterparts, particularly the S&P 500, over the last decade. This underperformance was notably exacerbated by the conflict in Ukraine. Nevertheless, 2025 marked a significant turning point, as European equities experienced a robust resurgence. This upturn can largely be attributed to the weakening of the U.S. dollar and the compelling valuations of European stocks, which have made them an attractive option for global investors. The shift in market sentiment suggests a potential re-evaluation of European assets, moving them from an overlooked category to a noteworthy investment.
Looking ahead to 2026, the forecast for IEV remains largely positive, with expectations of another strong year. Despite projections of modest GDP growth across the continent, European equities continue to offer valuations that are significantly more appealing when compared to other global markets. This undervaluation presents a substantial opportunity for investors seeking growth. However, it's crucial to acknowledge the ETF's expense ratio of 0.61%, which is relatively high and positions IEV more as a tactical, short-to-medium-term holding rather than a long-term core investment. Furthermore, a resolution to the ongoing conflict in Ukraine could act as a powerful catalyst, potentially unlocking further upside for European markets by reducing geopolitical uncertainty and boosting investor confidence.
While the outlook is optimistic, potential risks could dampen IEV's performance. A primary concern is the possibility of GDP growth falling short of current expectations, which could impact corporate earnings and stock valuations. Additionally, a reversal in the recent trend of U.S. dollar weakness could diminish the attractiveness of European assets for international investors. These factors highlight the importance of careful monitoring and a flexible investment strategy to navigate the evolving market landscape.
Investing in European equities through ETFs like IEV offers a path to participate in the economic recovery and growth of the continent. The current environment, characterized by attractive valuations and a favorable currency backdrop, presents a compelling case for considering these assets. However, prudent investors will also weigh the inherent risks, ensuring a balanced approach that aligns with their investment objectives and risk tolerance. The journey toward a more stable and prosperous Europe continues, and with it, the potential for its stock markets to reflect this renewed optimism.
