Best European funds: A practical guide for investors

Europe simply can’t be ignored by investors. It’s made up of around 50 countries, more than 700 million inhabitants and thousands of world-class companies. It also benefits from a supportive economic backdrop, generally stable governments and exposure to some of the most innovative trends on the planet. This explains why it’s one of the most popular areas with UK investors who have pumped billions of pounds into funds focused on this region.

But does it make sense to get exposure now? What are the relative pros and cons of Europe – and where should would-be investors put their money? This page looks at the reasons why investors should consider embracing the region and reveals how FundCalibre can help highlight the best European funds.

What are European investment funds?

European investment funds provide a way for investors to get diversified exposure to one of the world’s most fascinating areas. They pool money from many investors to buy shares of companies based in Europe or which carry out most of their activities in the region. However, the approaches of these funds will differ. For example, some portfolios embrace Europe in its entirety, while others specifically exclude UK stocks. Others concentrate solely on smaller companies, while others prefer to invest in large-caps. Some opt for a mix of small, medium and large.

European funds will also be run in different ways:

• Actively managed
• Index trackers
• Country/sector specific

Actively managed: The manager will choose which companies to invest in based on a combination of the fund’s objectives and their own research. The aim will be to outperform a benchmark.

Index trackers: These funds replicate the performance of a particular index, market or sector, rather than trying to outperform the market. If the index does well, then so does the fund, and vice versa.

Country/sector specific: There are also portfolios that are focused on a country or sector. These enable investors to get more concentrated exposure to this area.

Why consider European funds in 2025?

European equities have enjoyed a strong 2025 due to factors such as companies exceeding earnings expectations and some economic tailwinds. The STOXX 600 Index, which contains the region’s 600 largest publicly-traded companies, rose 6.6% year to date*. It’s up 9.1% over the past year and almost 25% over the past three years*.

However, let’s now look at five more reasons why a European fund could make an attractive addition to your overall portfolio.

1. Selection of companies

Europe has around 6,000 listed companies in exciting sectors such as healthcare, finance, information technology, and manufacturing. Many are corporate powerhouses with global reputations, including pharmaceutical giant Novo Nordisk, oil major Shell and Spotify, the music streaming specialist. A string of household name vehicle manufacturers, including Volkswagen, BMW, Mercedes-Benz, Renault, Peugeot, Fiat, Volvo, Porsche, and Ferrari, also call it home.

2. Exposure to trends
Unsurprisingly, given it boasts so many companies in different industries, the region is exposed to some long-term investment trends. These include artificial intelligence and the move to digitalisation, green energy and electric vehicles, luxury consumer brands, and demographic ageing and healthcare.

3. Stable governments and regulation
Some are obviously better than others but plenty of European countries boast stable governments and reliable regulatory environments. This makes them attractive places for businesses to thrive. Many of them also have well-established stock markets attracting international investors.

4. Optimistic economic outlook
The region is expected to grow modestly over the next couple of years, according to the European Commission’s Spring forecast. It predicts EU GDP of 1.1% this year and 1.5% in 2026, with inflation coming in at 2.3% and 1.9%, respectively**. However, nothing is obviously set in stone.

5. Popularity with investors
UK investors have been drawn to the region for many years. They now have £61.7 billion in the IA Europe excluding UK sector, according to the latest Investment Association data. This sector also enjoyed retail sales of £455.8 million in May 2025***. Elsewhere, UK investors have £2.3 billion in IA Europe including UK and a further £1.9 billion in IA European Smaller Companies***.

How to choose the best European fund for your portfolio

Next, we look at how to find the best European funds to invest in. There are different ways to evaluate these portfolios and each of these factors should play a part in your decision.

1. Fund performance
Past performance is no guarantee of future success but it’s still worth finding out which have been the best-performing European funds over different time periods. This enables you to gauge whether the fund has been successful during different periods. That’s why examining a fund over three, five and 10 years makes sense. However, you need to check whether the current manager has been responsible for this past performance or if he’s taken over fairly recently.

2. Holdings and sector allocation
It’s important to choose a fund whose holdings are aligned with your strategy. For example, it’s pointless opting for one packed with smaller companies if you’re wanting exposure to large-caps. The situation with sectors and geographies is the same. You need to decide which industries and countries you want to be invested in and make sure your chosen fund has that allocation. You also need to pay attention to their concentration. Some funds will have less than 50 stocks and others are far more diversified.

3. Fund manager track record and strategy
The fund manager is one of the most vital components of a fund. Therefore, assessing their strategy at the helm over different time periods is very important. Erratic investment performance is a prime example. One blockbuster year followed by another of losses could suggest that the philosophy is flawed in some way. That’s why it’s dangerous to choose a fund solely on the basis that it was one of the best-performing European funds over the past year.

4. Costs
They’re easy to overlook but costs can have a devastating effect on returns. That’s why it’s vital to consider all the various charges that apply. These can include initial and ongoing charges, as well as performance fees. Pay attention to the amount you’ll have to pay – and how this compares to other funds. As an aside, it’s easier to find the best European index funds as this will largely come down to a cost comparison, as long as their methodology for tracking is similar.

Types of European equity funds explained

So, what type of fund is worth considering if you want exposure to European equities? Well, this depends on factors such as your risk appetite and what you’re trying to achieve.

Pan-European

Firstly, you need to decide your ideal European exposure. A pan-European fund provides broad exposure to equities across the entire European region, including both continental Europe and the UK. Because they include the UK alongside the eurozone, pan-European funds can reduce the risk of being overly reliant on any single market while still benefiting from the economic diversity and opportunities across the continent.

European ex UK

These funds provide diversified exposure to the European mainland while deliberately excluding companies listed in the UK. They are often chosen by investors who already have separate UK equity exposure or who prefer to avoid the unique economic and market dynamics of the UK. European ex-UK funds allow investors to target the performance of continental Europe more directly.

Single country

Investors can also buy single country funds. They would be more suitable for more experienced investors or those adopting a core-satellite approach. This is an investment style in which the bulk of their holdings is kept in a more diversified fund but then pick some more specialised ‘satellite’ holdings for some extra spice.

Large-cap vs small and mid-cap focus

If you’re sold on the idea of having exposure to Europe, you’ll then need to consider whether you prefer large or smaller companies. Generally, the bigger, more established companies have longer track records of delivering consistent, reliable returns to shareholders. However, smaller companies may enjoy more rapid growth.

Thematic funds

Thematic approaches focus on cross-country trends such as sustainability (ESG leaders), innovation (automation, AI-enablers), or income. They can complement a core pan-European allocation but come with narrower exposures.

FundCalibre’s Top-Rated European Funds

Research is the key to success when it comes to choosing the right portfolio for your needs and that’s where FundCalibre can help. We analyse the best European equity funds and give detailed information on their investment process. No more than 10% in any sector are awarded the prestigious ‘Elite Rating’. To be considered, a fund manager must have a track record of at least three years, while risk-adjusted performance is measured by our AlphaQuest quantitative screening tool. This analyses the consistency of the alpha generated, as well as its absolute level, by using weekly data going back over a decade – or at least covering the manager’s tenure. This information is then used to generate an expected alpha range as well as assessing the probability of it being able to produce positive future alpha. The good news is we have found a number of European funds that are worthy of consideration.

Should you invest in European funds through an ISA or Pension?

You should always make use of tax-efficient vehicles and individual savings accounts (ISAs) and pensions are definitely worth considering. Stocks and shares ISAs, which shield you from paying tax on any gains generated, are wrappers allowing you to invest in assets such as company shares, corporate bonds, and investment funds. Under the current rules, they can be opened by anyone aged at least 18-years-old and up to £20,000 may be invested during each tax year. This runs from April 6th to the following April 5th.

For those looking to the longer term, pensions are also worth considering. Contributions get income tax relief and SIPPS (self-invested personal pensions) now offer more choice and flexibility. It might be worth seeking independent financial advice to help decide which investment vehicle is most suitable for your individual needs.

FAQs for investing in European funds

What are European investment funds?

These products pool money from many investors and then use it to invest in companies either based in Europe or carrying out most of their activities in the region. They provide a great way for investors to get diversified exposure to one of the world’s most fascinating areas and many world-class companies.

How do I invest in European funds from the UK?

It’s very straightforward. There are numerous investment platforms operating in the UK that provide access to thousands of European funds. Ideally, choose a fund with a sound, longer-term investment goal that offers an acceptable level of risk.  If unsure, consider independent financial advice and review our Learn to Invest guides

Are European funds a good investment in 2025?

That’s something you will need to decide based on your own opinion and published research from experienced analysts. However, never commit more than you can afford to lose and consider that most investments should be looked at on a five-year basis.

What’s the difference between European and global funds?

The key differences lies in the scope of their investment universe. European funds invest in companies listed on European exchanges. While some of these firms are domestically focused, many European-listed companies (such as multinational consumer brands or industrial leaders) generate revenues worldwide. That means European funds often provide exposure not only to Europe, but also to global markets through the international operations of their holdings.

Global funds are not limited to European listings. They can invest in companies listed anywhere — from the US to Asia to emerging markets. This gives them a broader starting universe, though it doesn’t automatically mean they are more diversified than a European fund, since European-listed companies themselves are often global players. In short: European funds focus on companies listed in Europe (many of which are global businesses), while global funds can invest in companies listed on any exchange worldwide.

Are dividends from European funds taxable in the UK?

Yes. Dividends from European funds are taxable in the UK unless they’re held in a tax-efficient vehicle such as an Individual Savings Account (ISA). Outside wrappers, UK dividend tax and CGT may apply, and foreign withholding tax may be deducted before distribution.

Final thoughts: Are European funds a good fit for you?

European funds can be a great addition to a broader investment portfolio as they give access to an exciting, vibrant region that’s packed full of corporate giants. Geographic diversification makes sense at a time when the world is facing numerous challenges and a pan-European fund is likely to have exposure to a variety of markets. Europe is also being tipped for growth over the next few years and is home to many industry-leading businesses that can take advantage of trends such as the growth of AI.

However, finding the best European investment funds can be a challenge because there are so many available, each with a slightly different focus. That’s why it makes sense to tap into the expertise of analysts at FundCalibre and allow them to do a lot of the legwork on your behalf.

*Source: MarketWatch, at 6 August 2025
**Source: Europa, 19 May 2025
***Source: Investment Association, May 2025