INVESTING
Valuation Spread Among Large Caps In Europe Over Time
Spread = Value P / B Divided By Growth P / B. Market Cap > $ 2 billion.
— Large Caps--- Median 0.30
0.25
0.20
Median = 0.185
0.15
0.10 |
|
|
2024 |
|
0.05
‘ 96
|
2000 |
2010 |
Spread: 0.156
2020
‘ 24
|
Source: S & P Capital IQ
Valuation Spread Among Micro Caps In Europe Over Time
Spread = Value P / B Divided By Growth P / B. Market Cap < $ 300 million.
— Micro Caps--- Median
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0.25
0.20
0.15
Median = 0.150 fa-mag. com / bookstore
0.10 2024
Spread: 0.114
0.05
‘ 96 2000 2010 2020‘ 24 Source: S & P Capital IQ
the current environment may favor a broader, more balanced approach. European equities, particularly small-cap value stocks, offer compelling valuations when compared to their past values and their current U. S. counterparts. For example, while the Vanguard S & P 500 ETF’ s trailing 12-month P / E stands at 24.5, the Avantis International Small Cap Value ETF( AVDV) trades at just 10 times earnings.
Investor Takeaways
• The extraordinary run of U. S. equity outperformance may be giving way to a new cycle favoring international stocks, especially in Europe.
• Policy shifts, currency dynamics, and valuation gaps may align to support a rotation in market leadership.
• The flip side of the U. S. trade deficit is that we run a capital account surplus— countries with trade surpluses, such as China and Japan, receive dollars and frequently invest the proceeds in Treasurys. If they sell less to Americans, they will have less funds to buy those Treasurys. And that’ s before they make an active decision to reallocate their assets elsewhere.
• Investors should consider rebalancing portfolios to capture potential upside in much cheaper international equities, particularly in small-cap and value segments.
The bottom line is that while no one can predict the future with certainty, history suggests that global diversification remains the most prudent long-term strategy.
LARRY SWEDROE is the author or co-author of 18 books on investing, including his latest, Enrich Your Future. He is also a consultant to RIAs as an educator on investment strategies.
38 | FINANCIAL ADVISOR MAGAZINE | JUNE 2025 WWW. FA-MAG. COM