Investors are courageous enough to examine their account statements.
Despite the volatility stemming from tariffs, the Deepseek AI Release overshadowed the key technology themes that powered the market in 2023 and 2024, having entered a bear market in March.
However, by 2025, improvements in equity have been observed. The returns from the index since the year’s start reveal some standout performers, including stocks from Europe, Latin America, real estate investment trusts, and more.
What connects these groups? They all struggled as underperformers in recent years.
European Stocks Are Thriving Once Again
Morningstar’s European Stock Index is soaring this year, benefiting from an improving macroeconomic climate, particularly within the financial services sector.
Moreover, Germany has renewed its focus on deficit spending, spurred by a push for military self-sufficiency initiated during the Trump administration.
The announcement of US tariffs led to a sharp sell-off in Europe, but the recovery has been V-shaped. Additionally, the weakening US dollar has positively impacted European earnings for US dollar investors who are not heavily invested. It’s noteworthy that both the European Central Bank and the Bank of England are currently reducing interest rates.
My research and investment colleagues have announced that Europe is “the most attractive developed region in the world,” making European stocks worthy of consideration in a diverse portfolio.
Latin America: Can the Revival Persist?
Stocks are rallying along the southern US border.
Morningstar’s Latin American Stock Index has surged over 22% so far in 2025, thanks to smaller markets in Mexico, Brazil, Colombia, and Chile. The weakening dollar has similarly bolstered returns for unaffected US investors, marking a turnaround from over a 25% loss in 2024 in US dollar terms.
Brazil faces some serious financial hurdles, while Mexico’s political climate has dampened sentiment on both sides of the border.
This year, I’ve collaborated with my colleagues on the Morningstar Research and Investment Team, which has identified Brazil as presenting the most potential in global equity markets over the next decade. Latin American stocks can be volatile, but they stand out more than ever.
REITs, Especially Outside the US, Are Outperforming
Real estate investment trusts (REITs) have also experienced double-digit growth this year outside the US, as many regions’ real estate sectors bloom, supported by low or declining interest rates.
How do US REITs compare? Morningstar’s US REIT Index lags behind the Morningstar Global Market Ex-US REIT Index in 2025, but it remains positively positioned ahead of the broader US stock market. Persistent high interest rates in the US are viewed as detrimental for real estate; however, REIT yields remain attractive, and property is regarded as a “real asset” that serves as an inflation hedge.
Diversification Ensures Exposure to Undervalued Asset Classes
US mega-cap technology stocks have dominated for so long that many investors assumed they were the only option. Moving into 2025, few anticipated how the legendary Seven would be dethroned. The rise of artificial intelligence, often likened to being “bigger than the Internet,” appeared relentless. Yet, the Deepseek AI’s emergence caught many off guard, as did the extent of the tariff impacts.
Gravity is a powerful force in investing. US stocks, particularly those in market growth, have yielded returns significantly above historical norms in 2023 and 2024. The losses observed in 2025 could be interpreted as a reversion to mean or a return to long-term averages.
The unexpected winners of 2025 showcase the dynamic nature of investment performance. Paradoxical investments can yield profits, albeit they may require time to bear fruit. Investors must diversify their approaches across geography, style, and market capitalization to effectively benefit from these shifts in market leadership.
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This article was supplied to the Associated Press by Morningstar. For more market insights, please visit https://www.morningstar.com/markets.
Dan Lefkovitz is a strategist at the Morningstar Index.
Source: apnews.com