iShares MSCI Europe Small-Cap ETF

IEUS

Market cap $150M

AI-related equity jitters are unlikely to be resolved overnight and eurozone government bonds could actually come out as a winner. Relative to euro rates, US equity volatility is reaching highs similar to previous crisis periods. A global rebalancing of portfolios could see significant demand for euro rates, mitigating the upward rate pressure.

Europe's macro outlook is shifting. After years of fiscal restraint and fragmented policy, the region is entering a new chapter - one centered on pro-growth fiscal policy, energy security, and capital-market reform.

French bond yields have risen significantly against German bunds and are likely to stay elevated or potentially move higher. The European Central Bank still appears to be a reliable backstop against excessive bond turmoil.

It's true that it's been a challenging year for U.S. small-cap ETFs. Using the iShares Russell 2000 ETF (IWM) as a benchmark for the category, we immediately see that 2025 has been marked by red ink.

Europe ETFs have been outperforming the S&P 500 due to cheaper valuations, upbeat economic growth, a more sustainable earnings pattern, less tech exposure, and cooling inflation.

Plans to increase defense and infrastructure spending offer compelling economic benefits for Germany's lagging manufacturing sector. The US seems to be dramatically reducing spending through its Department of Government Efficiency (DOGE) effort.

A continent-wide defense bump, didn't exactly catch the market by surprise, but markets could keep running.

Absolute Return Partners is a London-based investment advisory business. Founded by Niels Jensen in 2002, it focuses on providing bespoke alternative investment solutions to institutional investors.

European small caps, which represent a significant portion of the economy, have shown better long-term performance. IEUS ETF offers strong diversification and competitive performance, with an expense ratio of 0.41% and a dividend yield of 3.13%. The dominant sectors in IEUS have momentum right now, and the season from February to May shows a win rate of 50% or higher.

The ECB cut rates by 25bp as widely anticipated, but a slightly hawkish tilt bear flattened the EUR curve, which in our view remains priced aggressively. In the US, as the markets head towards the Fed's first rate cut, the probability of a larger cut rose slightly on Thursday.