Henry Kissinger, America’s doyen of realpolitik, once asked: “Who do I call if I want to talk to Europe?” This mischievously rhetorical question was interpreted at the time as a criticism of the region’s jumble of foreign policies. Europe has come a long way since then, of course. Today, with unflinching US support less than guaranteed, its nations’ efforts towards close collaboration are arguably more committed than they have been for many decades.
Yet some investors seem to believe the shift towards a united front is spectacularly all-encompassing. How else might we explain the widespread perception that Europe’s investment prospects should be treated as one great and indivisible whole?
By way of illustration, consider the aftermath of the global financial crisis. While the US pursued aggressive fiscal stimulus and was further buoyed by the dawn of the Big Tech era, Europe sought to repair its damaged balance sheets through austerity measures and the tightening of regulation around banks’ capital requirements. This led to a prolonged period of relatively muted economic growth – “gradual expansion”, as the European Commission has politely described it in recent years. As a result, many investors formed the view that the entire continent was unworthy of their attention.
Fast-forward to 2025 and we find numerous factors combining to cast Europe in a strikingly different light. They include the fallout from President Trump’s stance on trade tariffs, NATO’s increased defence budget and Germany’s monumental spending package. As a result, many investors have now formed the view that the entire content is worthy of their attention. Fancy that.
In my opinion, such blinkered thinking was wrong before and is wrong again now. It was ridiculous to see all of Europe as unattractive for more than 15 years, and it is ridiculous to see all of Europe as attractive today. To say the least, this is seldom how markets work.
The reality is that every economy, whether it is practically moribund or stunningly vibrant, is home to a vast array of companies. Some might perform well in spite of a difficult backdrop. Some might perform badly in spite of seemingly conducive conditions.
This means a key challenge for investors searching for long-term growth is to dig deeper. In my experience, the arena of smaller companies can be the most fertile hunting ground for those keen to escape the one-dimensional confines of the bigger picture.
Judging businesses on their own merits
Many of the businesses held by the fund I manage have a market capitalisation of less than a billion euros. This places them very much off the beaten track, insofar as they are likely to be overlooked even by the vast majority of investment analysts. This is why we depend on our own research, along with direct engagement, to identify the most promising opportunities. Crucially, these are rarely to be found in “hot” sectors or among household names.
Take Einhell, a Bavarian manufacturer of power tools. Driven by innovations such as a single battery that fits all products, its sales have risen by around 10% a year since 2018 – and increased by 9% during the first half of 2025 alone, and can therefore be seen as an excellent example of a rapidly growing business within an economy that is less than dynamic. Moreover, it has continued to thrive in the face of the COVID-19 pandemic, tariff turmoil and other major headwinds.
Fope is another hidden gem – almost literally. An Italian maker of luxury jewellery, it benefits both from a proven track record and from executives who have a clear and compelling strategy for building on the company’s success to date. Fope’s principal products are bracelets that retail for several thousand euros. I am no fashionista – as a quick glance at the contents of my wardrobe readily confirms – but even I can appreciate the timelessness of the designs, which has been underlined by strong sales over a number of years.
Another of our holdings, R&S Group, is heavily involved in the energy transition. It supplies transformers and other electrical infrastructure components, including for substations, hydroelectric plants and railways. This can be thought of as a classic “picks and shovels” investment. R&S is far removed from the limelight, yet it is a powerful enabler of sweeping change – a behind-the-scenes facilitator of the transformation happening all around us.
The point here is that each of these companies should be judged on its own merits. The businesses of Europe do not obligingly march in lockstep, rising and falling as one. The lesson: particularly at the lower end of the market-cap spectrum, it can pay to adopt a more granular approach to stock selection.
Europe may be edging ever nearer to Kissinger’s ideal in political terms. From an investment perspective, though, the region remains as fragmented as ever – and that is actually a good thing for those who are willing to look beyond the obvious.
David Walton is manager of the IFSL Marlborough European Special Situations fund. The views expressed above should not be taken as investment advice.