Hidden champions

While much of the market buzz focuses on the Magnificent 7, European bank stocks have quietly staged an impressive rally over the past two years, with the Eurostoxx Banking Index surging 50% during this period. Fundamentally, European banks have spent the last decade recovering from the financial crisis, navigating cost-cutting measures, asset write-offs, and stringent EU regulations—all while enduring the challenges of the Eurozone crisis. The saying "what doesn’t kill you makes you stronger" seems fitting here.

Today, European banks are reaping the rewards of higher interest rates at a time when they have become leaner and more efficient. Despite this recovery, we believe there is still room for further upside—both in catching up with the overall market and narrowing the gap with their U.S. peers.

In our European Value Fund, we hold positions in select regional players such as Caixabank in Spain (currently trading at 7.5x PER, with a 53% gain over the last two years) and Bawag in Austria (at 10x PER, delivering a 72% increase over the same period). We see these investments as part of a broader long-term opportunity within the sector.