In recent years, U.S. equities sharply outperformed international benchmarks, giving rise to the term “U.S. exceptionalism.” Indeed, the gaps between domestic stocks and foreign counterparts, including European fare, were exceptional, but that tide is turning to start 2025.
With global investors eschewing U.S. large-cap growth stocks and embracing value opportunities in regions with less political volatility, European equities are being reborn. That includes those with dependable dividends. Take a look at the WisdomTree Europe Quality Dividend Growth Fund (EUDG ), an exchange traded fund that’s higher by nearly 12% year-to-date.
EUDG is a broad Europe ETF not dedicated to Eurozone stock, but the ETF’s exposure to Germany, the Eurozone’s largest economy, is benefiting investors as Germany’s DAX Index index is trouncing the S&P 500 since the start of the year.
EUDG Price of Admission Still Appealing
During the extended period of European stocks lagging U.S. peers, it was often said that the former were deeply discounted relative to the latter. Despite the strong start to 2025 by European equities, they remain inexpensive compared to the U.S. Christopher Gannatti, global head of research at WisdomTree, pointed out that on the basis of forward price-to-earnings ratio, international stocks traded at a 40% discount to the U.S.
“The impact of such a valuation disparity, unfortunately, does not immediately portend a change in the trend. We like to picture a coiled spring, where you can imagine the tension building,” he noted. “If something happens externally to disrupt the spring, it can move quite quickly. It’s just impossible to know ahead of time what will disrupt the spring.”
Quality Names in EUDG
Of course, not all cheap stocks are quality names. EUDG can fill that void. It employs quality metrics, which can potentially keep investors away from value traps, while ensuring the ETF’s dividend proposition is dependable. That’s noteworthy because, outside of the U.S., Europe has long been one of the most consistent dividend markets.
Other points in EUDG’s favor include exposure to defense stocks at a time when European countries are boosting related spending. Indeed, industrials account for almost 20% of the ETF’s weight. On top of that, the European Central Bank’s (ECB) is currently flexible to lower interest rates.
“Monetary policy is also helping. The European Central Bank (ECB) has signaled further rate cuts, giving markets another leg up,” concluded Gannatti. “Defense stocks, in particular, are seeing a surge. Rheinmetall (an EUDG holding), a leading military equipment manufacturer, is soaring as Europe boosts its defense spending amid rising geopolitical tensions.”
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