After years of chasing American growth stocks powered by AI and innovation, investors are beginning to look back to Europe. Rising interest rates and shifting global dynamics are reviving interest in the continent’s overlooked but profitable companies. M&G is among those spotting the opportunities.
“It’s not that investors ignored Europe’s value story,” Bhavneet Ahluwalia, investment specialist at M&G told Investment Officer. “They ignored Europe as a whole.” Years of North America–heavy portfolios left European equities sidelined. Now value investing in Europe is reasserting itself: “Global dynamics have shifted post-COVID and amid rising rates, prompting renewed interest in European equities.”
This is the continent’s moment to show what it’s really worth.
The case for Europe, Ahluwalia argues, is not about abandoning US exposure. It is about balance and rediscovering opportunities in markets trading at deep discounts to both their own history and the US. Price-to-book ratios in Europe remain roughly 40 percent below their 20-year average, according to M&G data.
Finding hidden value
M&G sees value investing as a discipline built on consistency. “We start by screening each sector from the most expensive to the cheapest, focusing on the bottom quartile,” Ahluwalia explained. “We use multiple valuation metrics, not just price-to-book, to reflect the nuances across companies.”
From there, the team subjects around three hundred companies to rigorous fundamental analysis. Only sixty to one hundred make it into the portfolio, guided by financial strength, business durability, and management behavior.
This structured approach has delivered results: the 4.9 billion euro M&G (Lux) European Strategic Value Fund has outperformed the MSCI Europe Value Index in fourteen of the past seventeen years. The fund holds a five-star and Gold Morningstar rating for its strong process and steady outperformance of value benchmarks.
Avoiding value traps
With valuation spreads at multi-decade highs, the challenge for value managers is avoiding the cheap stocks that stay cheap for a reason.
“We try to avoid value traps through a hybrid process,” Ahluwalia said. “Fundamental analysis is crucial. We assess financial strength, business durability, and management discipline. That’s what helps us understand downside risks.”
The fund’s portfolio construction process limits concentration risk, with no single position exceeding a three percent active weighting. This ensures diversification across sectors and market caps. That discipline matters more than ever as higher rates reshape Europe’s sector dynamics.
Banks and utilities
Europe’s higher-rate environment has reshaped the opportunity.
“Utilities and staples are back in play,” said Ahluwalia. “During the zero-rate era, valuations were too stretched to justify. Now, with normalised rates, entry points have improved. The banking sector, long unloved, is also fundamentally stronger and trading at steep discounts.”
The fund remains overweight banks such as Commerzbank, KBC and Nordea, supported by rising capital ratios, earnings momentum and resilient balance sheets.
A world in flux
M&G sees the global environment shifting from a stable, volatility-depressed world to one of dislocations, and that plays directly to value investors’ strengths.
“Volatility is an ally for value investors,” Ahluwalia said. “It brings fresh ideas and new entry points. Every market cycle refreshes the pool of opportunities.”
Those opportunities range from energy-transition names such as RWE and Nexans to cyclical industrials including Daimler Truck and ArcelorMittal.
Value redefined
While some argue that deglobalisation, digitalisation and the energy transition have blurred the line between value and growth, Ahluwalia disagrees.
“Value investing hasn’t changed, but the environment has,” she said. “After years of zero interest rates, we’re back to a world where valuation fundamentals matter again. It’s not about redefining value; it’s about re-emphasising the basics.”
Or, as she put it: “Value investing is about finding companies with solid fundamentals that aren’t yet reflected in the price, and holding them long enough for the market to catch up.”