July 24, 2026 · 13 min read
European stocks outperformed the S&P 500 in 2025 for the first time in years — and they're doing it again in 2026. A weaker US dollar, Germany's historic €500B fiscal stimulus, rising defense budgets, and a massive valuation gap vs US equities have drawn global capital back to Europe. This guide covers the best European ETFs, the top individual stocks available as ADRs, valuation data, currency risk, and whether Europe's outperformance can continue.
European ETFs range from broad multi-country funds (VGK) to single-country plays (EWG for Germany, EWU for UK). Each has different country exposure, expense ratios, and liquidity profiles. Here is how the major options compare.
| ETF | Coverage | Fwd P/E | Yield | AUM | Exp. Ratio | YTD 2026 |
|---|---|---|---|---|---|---|
| VGK | 22 European nations | 14.2× | 3.4% | $21B | 0.09% | +18.2% |
| EZU | Eurozone only (16 nations) | 13.6× | 3.5% | $7B | 0.11% | +20.1% |
| EWG | Germany only | 12.8× | 3.2% | $2.5B | 0.50% | +22.4% |
| EWL | Switzerland only | 17.4× | 2.9% | $1.8B | 0.50% | +12.6% |
| EWU | United Kingdom only | 11.8× | 4.2% | $2.8B | 0.50% | +14.8% |
| EWQ | France only | 14.1× | 3.6% | $0.9B | 0.50% | +19.7% |
| HEZU | Eurozone (USD-hedged) | 13.6× | 3% | $1.1B | 0.36% | +24.8% |
The geographic and sector composition of European ETFs differs significantly from US funds. European indices are heavy on financials, consumer staples, energy, healthcare, and industrials — and light on technology relative to the S&P 500. This sector mix is both a risk and an opportunity.
| Sector | VGK Weight | S&P 500 Weight | Key Names in Europe |
|---|---|---|---|
| Financials | 17% | 13% | HSBC, BNP Paribas, Allianz, ING |
| Healthcare | 16% | 12% | Novo Nordisk, AstraZeneca, Roche, Novartis |
| Industrials | 15% | 9% | Siemens, ABB, Airbus, Schneider Electric |
| Consumer Staples | 11% | 6% | Nestlé, Unilever, Diageo, L'Oréal |
| Consumer Disc. | 11% | 10% | LVMH, Hermès, Inditex, BMW |
| Technology | 9% | 31% | ASML, SAP, Infineon — much smaller |
| Energy | 7% | 4% | Shell, TotalEnergies, BP, Equinor |
| Materials | 6% | 2% | BASF, Air Liquide, Rio Tinto, Glencore |
US investors can buy major European stocks directly as ADRs (American Depositary Receipts) on US exchanges — no foreign brokerage account required. Here are the six most compelling European names for 2026.
Only maker of EUV lithography machines; every advanced chip on Earth requires ASML. AI chip demand is a structural tailwind for years.
Ozempic and Wegovy dominate global GLP-1 obesity and diabetes markets. $10B+ annual revenue from weight-loss drugs alone and growing.
Europe's largest software company, migrating 25,000+ enterprise customers to S/4HANA cloud. AI-powered ERP is driving record cloud revenue growth.
Dominant luxury conglomerate: Louis Vuitton, Dior, Moët Hennessy. Aspirational consumption from Asia (especially China) recovery drives growth.
Defensive global consumer staples giant with pricing power. Undergoing portfolio optimization (selling lower-margin businesses, focusing on premium brands).
Fastest-growing global pharma company. Oncology pipeline (Tagrisso, Imfinzi, Enhertu) is driving 15–20% revenue growth; $80B revenue target by 2030.
For US investors, European ETF returns have two components: the local stock market return (in euros or pounds) and the currency effect (EUR/USD or GBP/USD exchange rate movement). In 2026, EUR/USD has risen from 1.05 to 1.12 — adding roughly 6.7% of currency tailwind to unhedged European ETFs for US investors holding EZU or VGK.
For most long-term investors, unhedged European ETFs (VGK, EZU) are the right choice — currency effects average out over time and hedging costs 0.1–0.3% annually. Hedged ETFs (HEZU) make sense when the euro appears structurally overvalued or when you are making a short-term trade on European equities without wanting EUR risk.
For most US investors, VGK (Vanguard FTSE Europe, 0.09% ER) is the best single European ETF. It covers 22 European countries including UK, Germany, France, Switzerland, and the Nordics at the lowest expense ratio available. EZU is better if you specifically want only Eurozone exposure (excluding UK and Switzerland). For a currency-hedged version that removes EUR/USD exchange rate risk, HEZU tracks the same Eurozone index with a hedge overlay.
European stocks trade at a historically large discount to US equities. The MSCI Europe index trades at ~14× forward earnings vs ~22× for the S&P 500 — roughly a 35% valuation gap. European dividend yields average 3.4% vs ~1.3% for the S&P 500. The discount reflects lower tech sector weighting, slower growth expectations, geopolitical risk premium, and structural concerns about European competitiveness. Whether this discount is justified or a buying opportunity is the central debate for international equity investors.
It depends on your view. If you believe the euro will weaken vs the US dollar, a hedged ETF like HEZU adds return (you capture European equity returns without EUR depreciation drag). If the euro strengthens, hedging costs you. Long-term, currency effects tend to mean-revert, so unhedged ETFs like VGK or EZU are appropriate for 5+ year investors. Currency hedging costs roughly 0.1–0.3% annually in the current rate environment.
Yes — ASML is arguably the most defensible technological moat in the world. EUV lithography machines are required to manufacture chips at 7nm and below (the chips that power AI, smartphones, and data centers). ASML has shipped 100% of the world's EUV machines. The technology took 20 years and ~$10B in R&D to develop, with components sourced from 5,000+ suppliers. No realistic competitor exists within the next 10–15 years.
European equities outperformed US markets in 2025 for the first time in many years, driven by: (1) Dollar weakening — a weaker USD boosts the USD-translated returns of EUR and GBP assets; (2) Massive German fiscal stimulus (€500B infrastructure fund) and increased European defense spending reversed the continent's austerity cycle; (3) Valuation re-rating — the wide EU/US valuation gap began to close as investors sought cheaper international assets; (4) European luxury, defense, and pharma outperformed their US peers.
Yes — major European stocks like ASML, Novo Nordisk, and AstraZeneca trade as ADRs (American Depositary Receipts) directly on US exchanges under tickers like ASML, NVO, and AZN. SAP also trades on NYSE as SAP. For less liquid companies like LVMH (MC.PA) or Nestlé (NESN.SW), US investors typically use European ETFs for practical access rather than buying on European exchanges directly.
European stocks make sense as a portfolio diversifier for US investors willing to accept currency risk and different sector exposure. The valuation gap vs US equities is historically compelling — but valuations have been cheap for a decade without consistently closing, which is a real risk to acknowledge.
The practical approach for most investors: add 10–20% of your equity allocation to international developed markets through VGK or a broad international ETF like VXUS. This captures European outperformance when it occurs without concentrating on a specific country or currency thesis. For higher conviction, EWG (Germany) offers the cheapest valuation in Europe with the fiscal stimulus tailwind, while HEZU removes currency risk at a modest cost.
Individual European stocks accessible as ADRs — ASML, Novo Nordisk, AstraZeneca, and SAP — offer the best of both worlds: world-class moats at lower multiples than US comparables, accessible in any US brokerage account.
Get AI prediction signals, unlimited stock comparisons, portfolio analytics, and personalized watchlists — free for 14 days, no credit card required.
14-day free trial · No credit card required · Cancel anytime