• Momentum is a style of investing that attempts to ride the wave, buying early on the way up and selling early on the way down.
• Money flows into Europe (€26 billion in 2025) have been driving European Equities higher, attracting further flows and further pushing prices up.²
• As US Equities underperform, global capital flows out of the US, driving the dollar downward.

Momentum investing is like ‘riding the wave’ in the stock market. Instead of trying to find undervalued companies or predict future trends, momentum investors look for stocks that have already been performing strongly – meaning their prices have been steadily going up. The idea is that these companies will likely continue to perform well due to market psychology (Fear Of Missing Out) and persistent trends. It can also be self-fulfilling in that the more a stock rises, the more people buy it, so the higher its price goes and so on. A momentum investor attempts to buy into these assets while their prices are rising and aims to sell them once the upward momentum starts to slow down or reverse. You’re not trying to time the exact peaks and troughs but just sell higher than you bought it for as illustrated below:

Source: Jag Capital Management.

Our Style

At Bowmore, we are style agnostic. This means we don’t have a set style of investing for all market cycles. We may be growth investors when we’re feeling bullish (optimistic) and look for companies/sectors with high-growth potential, or value investors when we’re feeling bearish (pessimistic) and look for companies that are deeply discounted and less cyclical. We tend not to be momentum investors as this can be quite risky – if momentum crashes and trends reverse quickly, you can realise serious capital losses. Additionally, the self-fulfilling nature of momentum investing means company share prices can become significantly overvalued, creating bubbles. A classic example is Tesla whose share price doubled in Q4 2024 before halving in Q1 2025. However, momentum is an incredibly powerful market force and, whilst we don’t daily trade short-term buy/sell signals, we do use it to identify longer-term trends.

Current Trends

One of the key momentum trends we’re watching is the flows into European Equities. This area of the market has been trading on a massive discount to US Equities for years (currently at a 29% discount)¹, and we’ve been looking for a reason for this valuation gap to close. Following almost a decade of persistent outflows, European Equities have seen strong inflows totalling €26 billion so far in 2025:

Source: JPMorgan, Investing in Europe’s economic future

These flows show both an optimism for European Equities but also create momentum, and it is therefore no surprise that Europe is the best performing region this year, delivering a return of 11% whilst global equity markets have averaged -1%. The valuation gap is starting to close between Europe and the US, but there is still a significant way to go:

Source: JPMorgan, Mid-year Outlook 2025

Bowmore portfolios

We think that momentum will continue to build in terms of flows from the US into Europe and around the world. The trade policy uncertainty in the US is causing money to flow out of the region, leading to dollar weakness and putting a big question mark on US exceptionalism. We are looking to reduce our US Equity exposure further, not because we think the US will enter a recession, but rather we are finding more attractive opportunities globally. Not only is Europe trading on a discount, but household savings are much stronger than in the US, interest rates are lower, and government spending packages are enticing. As money flows into Europe this will boost equity returns, at the detriment of US equity returns, further attracting investors still on the fence.

Dollar strength is highly correlated to US equity performance. As US equities outperform, this attracts global capital which drives the dollar upward – the reverse is also true. Therefore, we anticipate further dollar weakness as US equities underperform the rest of the world. A weaker dollar is typically supportive of Emerging Markets which are also showing strong signs of tech innovation and so this is another region we are looking to add to in favour of US Equities. As money flows from the US into EM, this causes further dollar weakness and further increasing the attractiveness of EM equities v US equities. You can see how these cycles compound and are self-fulfilling.

Source: LSEG DataStream, data as at 19/06/2025

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:

¹ JPMorgan Mid-Year Outlook 2025

²JPMorgan Investing in Europe’s Economic Future