LIVE MARKETS-Europe's clear winners and losers driving sovereign wealth fund interest - UBS strat

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EUROPE'S CLEAR WINNERS AND LOSERS DRIVING SOVEREIGN WEALTH FUND INTEREST - UBS STRAT

Increased dispersion in European stocks is piquing the interest of sovereign wealth fund investors, according to UBS's head of equity strategy, who said some are even considering active managers over the passive ones they typically use.

European stocks have had a turbulent ride in 2025 as U.S. tariffs roiled markets and ramped up uncertainty for companies and the economy.

"If you've got a big currency move or a yield move, or you have a very specific industrial policy that favours one sector over another - concentrated in, say, defence spending and infrastructure - what you're doing is creating a lot of dispersion between stocks, said Gerry Fowler, head of European Equity strategy at UBS.

As opposed to the whole market behaving in line with broader economic trends, clear winners and losers are emerging, he told Reuters.

"I'm starting to have conversations with sovereign wealth-type clients who are looking at a lot of these drivers - as we are - as big drivers of dispersion."

With the alpha opportunity a lot higher than it used to be, sovereign wealth funds are not just thinking about investing in Europe, but some that usually direct flows to passive funds are thinking about active allocations, he said.

And while recent flows into Europe have mostly been via passive ETFs and the like, UBS's Fowler has noticed a small uptick in active flows recently and thinks this could grow further.

"It's very small, but I just have a hunch that the active opportunity is going to be large enough that there will be a little bit of a flow back towards allocations to active managers"

"In theory it's a lot easier for them to beat benchmark than it's been for a long time," he said.

(Lucy Raitano)

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