Equity Valuations May Call for Active Approach

However, there are still plenty of attractive investment opportunities available for those who know where to look. In the Q4 2025 Portfolio Perspectives, the MFS team evaluated the state of play for both the domestic and European equity markets.

Starting domestically, the MFS report noted that valuations within the S&P 500 remain high compared to historical precedent. As the report stated, understanding the root causes of these valuations is key to finding the strongest opportunities in the U.S. equity market.

Unsurprisingly, part of the valuation spike has come from the Magnificent Seven’s dominant market position. Not only have these companies led the pack for years, but they continue to benefit from ongoing trends such as cloud computing and artificial intelligence.

It’s not just the Magnificent Seven driving up valuations, though. The MFS report notes that corporate profits grew significantly due to lower net interest expense. Furthermore, when faced with inflationary pressures, many large-cap companies have been able to pass costs on to consumers efficiently.

“We believe that determining the ability to maintain strong growth, defend margins, and maintain pricing power is best done at the company level as the operating environment changes, which it inevitably will,” the MFS team added.

The MFS Active Growth ETF (MFSG ) could help advisors and investors tap opportune U.S. companies. An actively managed fund, MFSG zeroes in on high-quality companies that offer competitive advantages, pricing power, capability for expanding margins, and significant barriers for entry.

This bottom-up approach, combined with the flexibility of active management, could help navigate the U.S. equity market.

On the other side of the globe, valuations for the European equities market are looking more attractive. The MFS report noted that European valuations are soaring due to a variety of factors. This includes German fiscal spending, the European Central Bank’s rate cuts, and more.

Furthermore, the European equity market may be less exposed to tariff risks than investors may realize. The MFS team pointed out that European companies that primarily accrue revenue domestically have been leading performance thus far and may continue to do so.

In particular, the MFS report highlighted the financials sector as the leading driver of European equity performance. Even amid rate cuts, European banks have remained highly profitable, with minimized exposure to tariffs.

For those looking to expand their exposure to European companies, the MFS Active International ETF (MFSI ) may be able to help. A diversified, active approach to international exposure, MFSI looks to build a high-conviction portfolio with a lean towards quality.

MFSI’s investment approach comes from its portfolio team’s philosophy that stocks being traded at a discount to their projected value can offer stronger potential for expansion down the line. The fund mainly derives its alpha generation through its stock selection process, through its focus on high quality stocks offered at compelling valuations.

While the fund doesn’t necessarily focus on European equity exposure, MFSI does currently offer a significant tilt towards Europe. As of October 31st, 2025, over 36.51% of the fund’s assets are allocated towards companies based in Europe. Meanwhile, 11.60% of MFSI’s assets are allocated to companies based in the United Kingdom, as of October 31st, 2025.

This lets MFSI operate as a diversified tilt towards the attractive European market. The fund remains highly invested in opportunities in Europe but isn’t beholden to the region to deliver results.

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