Donald Trump’s “America first” agenda was always likely to impact heavily on Europe. A question many investors might be asking now is whether it is rendering the region a full-blown no-go zone.

The signs appeared ominous even before Trump reinstalled himself behind the Resolute desk and began rattling through a towering pile of executive orders. Repeated threats of trade tariffs were soon accompanied by a suggestion that the US could invade Greenland¹ – a curious basis for rebuilding the political bridges that buckled under his first presidency.

The Trump administration has since pushed ahead with tariffs, in response to which the European Union has responded with its own levies on US imports. Meanwhile, the White House’s stance on ending the war in Ukraine has prompted claims that relations between the US and Europe have reached an epochal turning point. Trump has been accused of bringing Russia in from the cold and undermining NATO².

Europe also has plenty of problems of its own making, of course. Leading lights such as France and Germany are mired in political turmoil. A broader renaissance in populism and nationalism has revived the spectre of fragmentation. Economic growth, such as it is, has been politely described as “gradual expansion”³.

Even the beloved bureaucrats of Brussels have been shaken. Late last year, to mark the end of his spell as Vice-President of the European Commission, Spanish politician Josep Borrell announced the publication of Europe in ‘the Arc of Fire’, a sombre tome detailing the “multiple conflicts and crises” confronting the continent⁴.

In light of such a dismal bigger picture, you could be forgiven for thinking the investment case for Europe is pretty tenuous. But you would be in danger of drawing a false conclusion from a false premise, because it is not just the bigger picture that matters.

Looking beyond the headlines

You do not need to look far for evidence that investment performance is not invariably linked to political and economic health. In 2024, despite all its woes, Germany proved a classic exception to the supposed rule.

Having seen his three-party governing coalition collapse, Chancellor Olaf Scholz lost a parliamentary vote of confidence. The economy lagged the eurozone as a whole, with the European Union forecasting further struggles until 2026 at the earliest⁵. Yet the DAX index of blue-chip companies rose 18.7%⁶.

This is not to imply all available funds should now be channelled towards Frankfurt, even after the announcement of plans to substantially increase German spending on defence and infrastructure. But it does underline that in “failing” countries or regions, as elsewhere, a useful way of uncovering the brightest investment opportunities is to move beyond the headlines and instead pay attention to what is happening at the company level.

This approach applies all along the market-capitalisation spectrum. It can be particularly effective towards the lower end, where the investment analyst community’s coverage of businesses is often wafer-thin.

For example, a US mega-cap or large-cap stock might be monitored by dozens or even scores of analysts. By marked contrast, our own research shows a European small-cap is likely to attract an average of just four “eyeballs” – and a European micro-cap just one.

Against this backdrop, an on-the-ground presence can make a significant difference. If “sell side” analysis is scarce – or even non-existent – investment decisions may hinge on the combination of quantitative and qualitative insights gleaned from face-to-face meetings with management teams, site visits and other forms of direct engagement.

Assessing opportunities on a business-by-business basis

Inevitably, a key challenge at present is to find businesses that might be thought of as “Trump-proof”. Among European small-caps, broadly speaking, these fall into two categories – those that have a largely domestic focus and those that have localised production overseas.

Consumer goods manufacturer Sarantis is a good example of the first. Based in Greece but with a strong presence across Europe, it faces scant competition from global brands and has minimal sales in the US – meaning it has little to worry about on the tariff front. Its solid fundamentals have already seen it through the Greek debt crisis of 2009, the COVID-19 pandemic, sky-high inflation, soaring interest rates and rising costs.

Mersen, a specialist in electrical power and advanced materials, also looks well placed to withstand the fallout from an international trade war. In this case the key lies in geographic reach. Headquartered in France, the company has more than 50 industrial facilities and 18 research and development centres across 30-plus countries – including, notably, 10 sites in the US.

We also continue to hold European small-caps that have a genuinely global outlook. They include Swedish industrial group VBG, which is a leading manufacturer of trailer couplings, and Italy’s B&C Speakers, which supplies components for high-end loudspeakers. Notwithstanding the whims emanating from the Oval Office, we still see long-term growth potential in these businesses.

Check the listing of any of the above stocks today and you might feel the share price is suspiciously low. Given all the noise surrounding Europe’s seemingly ever-mounting miseries, you might also feel this serves as a clear warning.

Do not be deterred – less still fooled. These companies are not cheap because Europe is in a dreadful mess. They are cheap because they are undervalued – and they are undervalued because too many investors are fixated on the region in its entirety when they should be far more interested in the unique circumstances of individual businesses.

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• Marlborough European Special Situations earned the title Best European Small and Mid-Cap Equity Fund over 10 years in the 2024 LSEG Lipper Fund Awards

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¹ See for example, BBC News: “Germany and France warn Trump over threat to take Greenland”, January 8 2025

² See for example, CNN: “US relations with never be the same after Trump’s call with Putin”, February 13 2025

³ See for example, European Commission: “Spring 2024 Economic Forecast: a gradual expansion amid high geopolitical risks”, May 15 2024

⁴ See for example, European Union: “Europe in ‘the Arc of Fire’’, November 25 2024

⁵ See for example, Reuters: “German economy to underperform euro zone until 2026, EU forecasts”, November 15 2024

⁶ See for example, Financial Times: “Germany’s own ‘magnificent seven’ help Dax defy bleak growth outlook”, December 24 2024

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.