Why Fund Managers Are Betting Big on Europe’s Bank Stocks — Here’s What Bank of America Just Uncovered

Bank of America reports a surge in fund manager investments in European banking stocks. Discover why global investors are going all-in, which banks are top picks, and what this means for American portfolios.

In a bold shift that has caught the attention of global investors, Bank of America (BofA) has revealed that fund managers are significantly increasing their exposure to Europe’s banking sector. Yes — at a time when Wall Street remains jittery over inflation, rates, and tech valuations, the so-called “smart money” is diving deep into European financials.

But why the sudden rush toward banks across the Atlantic?
What does Bank of America’s data really show?
And most importantly — should U.S. investors pay attention?

Let’s break it all down in real, actionable language.

🔍 The Core Finding: European Banks Are in Demand

According to Bank of America’s July 2025 Global Fund Manager Survey, allocation to European banking stocks is at its highest level in over five years. Portfolio managers from hedge funds, pensions, and institutional investment firms are now overweight European banks — a dramatic turnaround from the underweight sentiment just a couple of years ago.

📈 Key Highlights from the Report:

• 35% of global fund managers are now overweight European banks.
• That’s up from just 12% in early 2023.
• It’s the highest allocation since 2018, signaling renewed confidence.
• Many cited improving margins, stronger-than-expected balance sheets, and increased dividends as key drivers.

And here’s the kicker — some of the biggest inflows are coming from U.S.-based asset managers looking to diversify outside of an overheated domestic market.

🏦 Why Are Fund Managers Bullish on European Banks?

Let’s explore the reasons behind this shift. Spoiler: it’s not just about valuation.

1. Interest Rates Are Finally Working for Them

Unlike their American counterparts, European banks were long squeezed by negative interest rates. But the European Central Bank (ECB) has now raised rates well into positive territory — and kept them there to combat inflation.

The result? Banks are now earning far more on loans, while deposit rates remain relatively low.

This widens the net interest margin (NIM) — the bread and butter of banking profits. Institutions like BNP Paribas, Santander, and ING are now reporting double-digit profit growth, something that was unthinkable just a few years ago.

2. Undervalued Compared to U.S. Peers

European bank stocks have been trading at steep discounts to U.S. banks for years. While JPMorgan and Bank of America trade at around 1.5 to 2x book value, many European lenders still hover around 0.5 to 0.8x book.

That’s a potential bargain — especially when earnings are finally accelerating.

Fund managers love value opportunities with upside potential, and Europe’s banks fit the bill.

3. Healthy Dividend Yields

Amid market uncertainty, income becomes king. And many European banks are now offering dividend yields between 5% and 8%, with room to grow.

Combine that with share buybacks — which are making a comeback in Europe — and the total shareholder return picture looks pretty attractive.

🇺🇸 What This Means for American Investors

If you’re a U.S. investor, your exposure to international equities — especially Europe — might be minimal. But that could be a missed opportunity.

Here’s why:

• Diversification: U.S. tech and growth stocks dominate many portfolios. Adding European banks adds value, yield, and rate-sensitivity to the mix.
• Currency advantage: With the Euro gaining strength against the dollar in 2025, U.S.-based investors could benefit from FX gains on top of stock returns.
• Relative stability: Unlike high-growth sectors, banks are essential services, and with regulators tightening oversight, the risk of major surprises is lower.

Plus, many European banks now trade on U.S. exchanges as ADRs (American Depository Receipts), making them easy to buy on platforms like Robinhood, E*TRADE, and Fidelity.

📊 What Are the Top Picks Among European Banks?

Fund managers aren’t just blindly buying everything in the sector. Bank of America’s report highlighted a few top-performing names:

✅ UBS Group AG (NYSE: UBS)

• After acquiring Credit Suisse in 2023, UBS has consolidated its dominance in European wealth management.
• Strong earnings, a stable balance sheet, and a dividend yield over 4.5% make it a favorite.

✅ Banco Santander (NYSE: SAN)

• This Spanish giant has broad exposure to Latin America, offering global growth within a European framework.
• Analysts love its cost discipline and consistent dividend payout.

✅ BNP Paribas (OTC: BNPQY)

• France’s largest bank is well-capitalized and expanding into digital services.
• Recent earnings blew past expectations, and many hedge funds have increased stakes.

✅ ING Groep (NYSE: ING)

• Known for its lean operations and strong presence in the Netherlands and Germany.
• Offering a yield of nearly 6% and trading at a low price-to-book, ING is attractive for long-term buyers.

💼 What U.S. Fund Managers Are Saying

Some big names have recently voiced their optimism:

Jeffrey Gundlach, CEO of DoubleLine Capital, noted in a recent interview:
“U.S. bank valuations are stretched. European banks offer better returns and more favorable regulatory trends right now.”

Kathy Jones from Charles Schwab added:
“For the first time in years, European banks are in a sweet spot — rates are supporting margins, and the macro outlook is stable.”

It’s not just theory. Recent 13F filings show increased holdings in European banks across multiple hedge funds and ETFs, including:

• iShares MSCI Europe Financials ETF (EUFN)
• Invesco International Dividend Achievers ETF (PID)
• Vanguard FTSE Europe ETF (VGK)

⚠️ The Risks Still Linger

It’s not all rosy. European banks face a few risks that investors should keep in mind:

1. Political instability — From France’s elections to Brexit aftermath, the European political landscape is volatile.
2. Global recession fears — A slowdown in global trade or consumer confidence could dent loan growth.
3. Currency fluctuations — A strong dollar could eat into returns for U.S. investors buying Euro-denominated stocks.

But these risks are considered manageable — especially when weighed against the value and yield potential on offer.

💰 Final Thoughts: Time to Look Across the Atlantic?

Bank of America’s report is more than just data — it’s a signal. When the world’s top fund managers start piling into a sector, it often precedes a multi-year trend.

And Europe’s banking sector, after a decade of dormancy, is waking up with force.

For American investors focused on growth, income, and diversification, now might be the time to:

• Revisit your international exposure
• Explore top-performing European bank ADRs
• Consider financial ETFs with Europe-heavy allocations

🧠 Key Takeaways

• Bank of America finds that fund managers are increasingly bullish on European banks.
• Top names like UBS, Santander, BNP Paribas, and ING are seeing significant inflows.
• Drivers include rising rates, improved margins, strong dividends, and low valuations.
• American investors can easily access these stocks through U.S.-listed ADRs and ETFs.
• Risks exist but are currently outweighed by the sector’s upside potential.

Also Check This Post

Baird Upgrades This Fintech Stock, Calls for More Than 30% Upside — Should You Buy Now?