Earlier this month, the news hit inboxes that the Danish AkademikerPension is selling its shares in Tesla and blacklisting the company, just days after dropping State Street Global Advisors from a $3.1 billion allocation. The latter came after an ESG assessment, the former was based on Elon Musk’s increasing interference in European politics and employee rights issues at the EV company.
Both decisions neatly encapsulate the current mood in Europe. But it’s not just symbolic. European asset managers are updating their approach to investing in the U.S. and speeding to analyze the implications of changed policies on markets.
Lizzy Galbraith, political economist at Edinburgh asset manager Aberdeen said that: “President Trump’s rapid pace of executive actions, especially on trade, has led us to update our scenarios in several important respects.”
Uncertainty over tariffs on the EU are particularly concerning, she said. Since the Trump administration has started imposing tariffs this year, including on U.K. steel, global growth has slowed. The OECD downgraded the U.K.’s growth outlook, for example, forecasting that it will be 0.3 percent lower than initially expected.
“We now see the U.S. weighted average tariff rate going higher still to 9.1 percent,” Galbraith added. “We assume a reciprocal tariff to be implemented, albeit with various carve-outs; higher blanket tariffs on China; and more sector-specific tariffs, including on the EU, Canada, and Mexico.”
She added that because the risk of an even more disruptive trade policy has increased the firm has prepared responses to three scenarios: ‘Trump 2.0’, where the president acts on policy priorities but does not follow through on certain campaign promises; ‘Trump unleashed,’ where more aggressive policy changes are enacted by Congress; and, ‘Trump delivers for markets,’ which involves the president focusing on market-friendly aspects of his proposed agenda.
The ‘Trump unleashed’ scenario — which includes reciprocal tariffs and other trade barriers, and a breaking of the trade agreement between the U.S., Mexico, and Canada — will result in the U.S. average tariff reaching 22 percent. That is “above 1930s peaks,” Galbraith said.
“This mix of policies has caused a sharp increase in business uncertainty and undermined the ‘U.S. exceptionalism’ theme in markets,” she added. “We still see the fundamentals of the economy as sound. But our updated baseline policy expectations, and the skew of risks in our forecasts, will present growth and inflation headwinds to the U.S. economy.”
But others on the continent are far more concerned about how the relationship between the world’s two largest economic regions is progressing, more akin to the unleashed model. Although extreme, one French politician last week called for the Statue of Liberty to be returned, suggesting the U.S. no longer shares the values of France. And this week leaks of a private cabinet messaging group discussing bomb strikes on Yemen demonstrated the administration's clear disdain for the entire continent.
And following threats of a 200 percent tariff on alcohol, the EU imposed a 50 percent tariff on American whiskey. One positive that sources have noted is that the unrest in the U.S. is more likely to bring Europe closer together, with the quick response to defense and energy threats from the U.S. being one example. The EU plan to issue €800 billion in bonds to fund defense upgrades, given threats to NATO and other funding.
Andreas Utermann, chairman of the board of directors of Vontobel, a Swiss investment manager principally focused on developed markets, said that European firms are not only reacting to Trump when they make changes in the current environment but are also rethinking long-term exposure to the U.S.
“We're moving away from Pax Americana towards a more multipolar world, which is not just the doing of the U.S. it is the way that the world is evolving. It doesn’t suit some of the other players to have everything invoiced, including oil, in dollars.” The firm moved away from China in early 2024 and severed all ties with Russian clients and exposure in early 2023.
U.S. financial policy is driving the value of the dollar down, having dropped by around 4 to 5 percent since the start of the year with some firms forecasting additional declines of 10 to 15 percent over the next two years.
Amid this, Utermann said that it is “a brave man or woman that would predict what's coming out of the current administration. It sometimes almost seems like a test balloon and it isn’t very safe or wise to try and make predictions. The only rational answer to that, if you can't predict the future, is to make sure that you're adequately hedged against multiple outcomes.”
Utermann added that in an environment like this it is increasingly important for investment managers to earn their stripes and the trust of their clients, who are ever more concerned about the geopolitical and economic state of the entire world. “It is all about making sure that we had enough value to earn our keep, that's what keeps me up.”
An Opportunity for Alpha
With the S&P 500 declining and U.S. tech stocks also in freefall, some European asset managers believe the volatility and market dispersion are an opportunity to attempt to outperform passive market strategies with active ones. (Although as several Nobel laureates have argued, active rarely outperforms over time). Correlations between stocks are as low as they were in 2018 during the peak of the tech bubble; ripe conditions for active management.
“This is the perfect environment for active asset management. We want to take advantage of this volatility, because not all companies are the same and volatility creates opportunity, When everything's moving together it's harder,” Craig Sterling, head of U.S. equity research at Amundi, the largest non-U.S. asset manager, told II. “There's a healthy broadening of the market, and that's kind of what we've been calling for, the market underneath the surface is quite healthy and that's something we're going to take advantage of as active managers.”
He added that “the passives have really driven the bus late for a while now, but it does seem like things are starting to come the other way.”
Similarly, managers are increasingly looking to diversify away from U.S. stocks into other markets including European equities.
Adam Farstrup, head of multi-asset, Americas at Schroders, the U.K.’s second largest asset manager, said that the biggest tactical shift that the firm has made is capturing some of the upside that has become available because of outperformance in Europe. Some of this is mean reversion, but it is also a direct result of the prospects for a peace deal in Ukraine and the potential easing of geopolitical tensions.
“We think that creates a lot of upside sentiment opportunities in Europe, you see some potential resolution of the political issues in Germany and perhaps a loosening of fiscal conditions there,” he said, adding that the strong corporate earnings coming out of Europe have less to do with strong economic conditions there and more because of the rising popularity of global businesses based in Europe, rather than the U.S.
As a London headquartered firm, Farstrup said that it is easier to remain detached from some of the noise that is coming from the Trump agenda, despite being based in New York.
“Trump is putting a lot of things out there, so we are having to remind ourselves not to get drawn into every announcement that comes out,” he said. “Step back from the noise and think about the strategic direction, which is quite clear: It is ‘Make America Great Again.’ And on that basis, we can still be quite confident about that growth agenda and what that means for the U.S. economy.”
But the new economic approach will lead to pain in the short term, he continued.
Hopes for Peace
Trade and energy security are at risk in Europe, with Germany in particular heavily exposed to Russian gas (although the Baltic states recently removed themselves from the Russian grid). A positive outcome of the new administration would be an end to the war in Ukraine, and a peaceful resolution that did not sacrifice large parts of Ukraine to Russia could have serious implications on the European energy sector.
Todd Henderson, co-global head of real estate at DWS, the asset management arm of Deutsche Bank, said that while he “does not want to sound overly optimistic about geopolitics, a smiley face could be a resolution of the Ukraine conflict, certainly for Europe, from an energy consumption perspective”.
“Some of the broad stress in the European economies, but particularly Germany from a manufacturing perspective, could see some relief. I don't think that's too farfetched given a lot of the administration's messaging right now.”
He added that the DWS perspective on the attempt to bring Russia to the negotiating table is acknowledging that they're not all bad.
“When I thought about it that way, I felt better about some of the things I've heard,” said Henderson.
Europe’s ability to remain competitive in the current environment depends on how it responds to stresses in defense, energy, and manufacturing. Any external pressure that convinces the bloc to reevaluate is surely a good thing, he said, as are moves by the U.K. and Switzerland to align with the EU in key areas.
The actions of the administration are not going unnoticed by the wider European financial community, even thought not directly impacted. Sustainability, for example, remains a priority for the EU.
Eila Kreivi, former head of capital markets at the European Investment Bank, and now a active sustainable finance activist, told II that all of the steps being taken by the Trump administration are “the last hurrah of old boys trying to stop the world from changing.”
Amid the noise and the aggression, much of Europe continues along the same path as it was – perhaps buoyed and more willing to double down than ever before.
“The environmental and climate problems are however real, and the financial industry cannot, and do not, ignore them; they are just calling them by different names now,” she said. “As for Europe, one must look beyond the red herrings of slogans and ideological statements. Rather, ask who benefits if Europe does not transition away from fossil energy and continues to depend on others for its energy? There is not much point in building defense if there is no power.”
She added that DEI policies appear to be the real victim in the U.S., however, adding that “watching this administration in action perfectly proves the point of DEI.”
Asset managers, and pension funds in Europe are increasingly forced to adjust their outlooks amid a new world order. U.S. exceptionalism appears to be coming to an end, and with regions like Asia becoming more and more attractive and China’s influence over the world steadily growing, decisions are less dictated by U.S. policy.
European political dynamics will be more internally focused going forward, and the region will surely regain some independence as a result. But this is not simply a Trump play: When it comes to investment strategies this is a recalibration that has been coming for some time.
