MW The great rotation: Why this fund manager is pivoting from the U.S. toward Europe

By Jules Rimmer

The whole European economy is rebalancing as it is forced to adjust to the new realities of what geopolitics and trade relations mean for military and energy security. These shifts are throwing up a welter of new investment opportunities.

In the last decade, growth has been a scarce commodity outside of America. Now that is changing, especially in Europe where, in response to a new reordering of military and economic alliances globally, Germany is finally about to exploit its underleveraged balance sheet and one fund manager is excited about the investment opportunities this shift is creating.

Robert Lancastle manages $7 billion in a global opportunities mandate and $500 million in a Nasdaq-listed mutual fund

Robert Lancastle is the senior fund manager of the JO Hambro global opportunities fund, managing around $7 billion of assets, as well as a more recent, Nasdaq-listed international opportunities fund with around $500 JOPSX million in it.

Lancastle, who says he looks for under-appreciated quality and growth at attraction valuations, says there may be a major inflection point in 2026.

What's driving Lancastle's asset allocation at present is a conviction that outside of the Mag7 MAGS, "the so-called S&P 493 has no growth advantage over Europe but its valuations remain elevated in comparison with a 20-30% premium in earnings multiples." Moreover, the growth dynamic in Europe is changing for the better, even if, as Lancastle points out, "the change in approach has been to some extent forced upon it."

So why has Germany, the pre-eminent economic power in Europe, decided it needs to leverage its relatively conservative balance sheet? The answer lies in part, Lancastle says, with the destruction wreaked on its auto sector by Chinese competition. This has been hugely detrimental to German growth prospects at a time when its controversial dependence on Russian hydrocarbons suddenly exposed the energy vulnerability of its economic model.

These themes have developed traction of late with Siemens upgrading their outlook last week and a report by Morgan Stanley Friday highlighting Europe's thematically-rich investment environment at present.

The discount of European stocks to U.S. equities is starting to narrow.

Asked about the characterization of European initiatives to boost growth as slow and ponderous, Lancastle argues this is no longer valid. After the German release of its debt brake a year ago, potentially unleashing $1 trillion of government spending, there's a new capital cycle starting, Lancaster believes. He thinks the investment could actually reach $1.5 trillion with private-sector involvement. Germany realizes it needs its industries to be "heavier and harder" and that it needs to align its industrial development with new political realities.

The themes of deglobalization, import and export resilience and self-dependency are all in motion, Lancastle continues, and "we are in the mid-phase" only at this juncture.

Any growth pick-up will also be amplified, Lancastle stresses, by positive knock-on effects in consumer confidence and, as a consequence of that, a new consumer credit cycle.

For Lancastle, the years 2027-2032 will see a major build up in German defense, utilities, infrastructure and materials. Banks will also benefit from the capital cycle with much higher loan activity. This thinking is reflected in the kind of stocks to which Lancastle recommends exposure: defense names like Thales (FR:HO) and Leonardo (IT:LDO) that are platform businesses in the defense sector, not a direct manufacturer of missiles like Rheinmetall (XE:RHM) that could suffer if the war in Ukraine ended suddenly. He likes infrastructure proxies such as Heidelberg Materials (XE:HEI) and Holcim (CH:HOLN), the utility E.ON (XE:EOAN) and financials play Deutsche Borse (XE:DB1).

It's not just Germany that will be driving European growth, though. Lancastle looks to Spain, presently "the fastest-growing economy in Europe where a fifteen-year deleveraging cycle after the global financial crisis has now ended and there is a demographic dividend resulting from the return of young people to the Spanish economy and inward-bound immigration trends." Spain and Germany combined, Lancastle contends, could boost European GDP prospects by several percentage points on their own in the next two years.

The U.S. equity market accounts for almost two-thirds of the world's total capitalization, but the U.S. weighting is just 40%. Challenged on this punchy call, Lancastle responds by observing that "a quarter of the U.S. market is AI-related and fully-valued" and most of the growth component in the U.S. economy is owing to AI capital expenditure.

Lancastle does recommend AI exposure but expresses his current preference for what he calls AI industrials. In Japan he suggests Ebaru (JP:6361) and Daifuku (JP:6383) and a host of other companies elsewhere like Schneider (FR:SU), Infineon (XE:IFX), TE Connectivity $(TEL)$ and Amphenol $(APH)$.

-Jules Rimmer

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February 16, 2026 03:50 ET (08:50 GMT)

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