European economic prospects are strengthening as countries invest more on defence to decrease their dependence on the US. Furthermore, investors are reassessing their portfolios as they look for diversification and value away from the US. JPMorgan's European Growth & Income plc is a beneficiary of this change. Learn the reasons behind its popularity.
There is a real sense that things are changing for the better in much of Europe, and the prospects for European equities are improving accordingly. JPMorgan’s European Growth & Income plc (JEGI) offers investors exposure to this market’s newfound vibrancy.
European defence spending is up, and set to increase further
One major catalyst for the changes afoot in Europe is the shift in transatlantic relations since the re-election of President Trump. The early anti-NATO rhetoric of the new US administration has convinced European governments of the need for greater self-reliance, specifically more defence spending. Germany is leading the way with a very hefty package of defence and infrastructure spending worth €500bn (more than 11% of GDP). Germany has also eased borrowing constraints on its state governments, which will facilitate further investment spending at the regional level. Other European governments are following Germany’s example, and as a result, government investment by major European Union countries is set to increase by an average 8% per annum over 2022-2026, exceeding the pace of US investment for the first time in 25 years1. This expenditure will take time to flow into the real economy, but markets have already begun to discount the positive impact it will ultimately have on activity and investment opportunities. Not surprisingly, European defence stocks have been a particular beneficiary.
European markets benefit as investors reduce exposure to the US
These developments have captured the attention of global investors, and European equity markets have seen a significant rise in inflows. This trend began in the second half of 2024 and has gathered momentum since, as the uncertainties generated by the US government’s trade and economic policies2 encourage investors to reduce their exposure to US stocks, in favour of other markets. The relatively low valuations of European equities, compared to both their own history and to US stocks3 make Europe a particularly attractive destination for these funds, although Asian and other emerging markets and the UK are also benefiting from increased investment flows.
European inflation and interest rates are down, and confidence improves
European equity markets are being further supported by a marked improvement in the economy. Inflation has declined dramatically from its late 2022 highs above 10%, allowing the European Central Bank (ECB) to cut interest rates steadily over the past fifteen months. These factors, combined with low unemployment and steady wages growth, are lifting consumer sentiment. Business confidence is also improving – JEGI’s managers report a growing sense of confidence among European businesses which is translating into a greater readiness to make the capital investments necessary to fuel growth. Key forecasters such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) predict European growth will strengthen, albeit modestly, over 2025 and 2026, and there is scope for ongoing improvement in later years as planned public and private investments come on stream.
Why JEGI is popular with investors
JEGI provides investors with access to the most interesting opportunities generated by these favourable investment conditions. It targets attractively valued, high quality, well managed stocks with positive operational momentum, with the aim of outperforming the benchmark, the MSCI Europe ex UK Index (total return) in sterling terms, not just in the good times, but over a variety of market conditions.
The Company’s positioning in Financials is an example of the kind of companies the managers favour. This sector has outperformed the broader market over the past five years, thanks in part to higher interest rates, which have supported margins. Despite this strong outperformance, two of JEGI’s largest active positions, in Unicredit SPA, an Italian regional bank and Allianz, a German diversified insurer, continue to look attractively valued given their strong earnings growth. Both are also returning cash to shareholders via dividends and buybacks.
Identifying the right stocks at the right price
Investors are sitting up and taking notice of JEGI’s performance record, making it one of the best-selling trusts through Hargreaves Lansdown’s investment platform in July. JEGI’s performance track record attests to the managers’ ability to identify the right stocks, at the right price. The Company has delivered a return of 14.7% in Net Asset Value (NAV) terms, including ongoing charges and any applicable fees, over the year ended July 20254 and an average annual NAV return of the same magnitude over past five years4. This compares very favourably with the benchmark, the MSCI Europe ex UK, which has delivered over the same period 9.8% and 10.1% respectively. And an annual average of 10.1% over the past five years. Furthermore, this outperformance has been consistent despite the unusually volatile and very varied market conditions investors have had to endure since the turn of the decade – JEGI has outperformed the benchmark in each of the 12-month periods to end July 2025. It has also decisively outperformed all its peers within the AIC’s Europe sector over the past five years4.
In addition to its performance, JEGI is further differentiated from its peers by its distinctive dividend policy, which provides investors with an attractive and reliable income stream – particularly appealing for those seeking regular, predictable income. The Company pays four dividends each financial year, in July, October, January and March, based on 4% per annum of the NAV at end of the preceding financial year. In the financial year ended 31 March 2025, this policy delivered a dividend yield of 4.3% - significantly higher than its peers. JEGI’s ongoing charge of 0.66% is also competitive relative to other trusts in the sector.
At a time when the UK investment trust sector is consolidating and evolving, JEGI’s strong returns and consistent outperformance of both its benchmark and its peers, combined with its relatively high and regular income and low ongoing charge, all help to explain why the trust is seeing demand from retail investors. The Company’s long-term focus on the many opportunities generated by resurgent European markets suggests shareholders can look forward with confidence.
