By Dan Lefkovitz of Morning Star
Investors are brave enough to peek at the statements of their accounts.
Even in the face of tariff-related volatility, the Deepseek AI launch clouded the major technology themes that had markets mounted in 2023 and 2024 as AI stocks entered the bare market in March.
However, in 2025 there were profits from stocks. Looking at the returns from the beginning of the year across the index, you notice some amazing stars: European stocks, Latin America and real estate investment trusts.
A typical thread connecting the three? Everything has been under performers for the past few years.
European stocks are once again amazing
Morningstar’s European stock index has risen this year due to improved macroeconomic environment. In particular, the financial services sector is a major beneficiary.
Then there is Germany’s renewed interest in deficit spending, and the continent focuses on military self-sufficiency, spurred by the Donald Trump administration.
The US tariff announcement caused a sharp sell-off in Europe, but the recovery is V-shaped. The weakening of the US dollar has led to an increase in European stock earnings where US dollar investors are not being cultivated. It’s not harmful that the European Central Bank and the Bank of England are actually cutting interest rates.
My research and investment colleagues call Europe the “the most attractive developed market region in the world,” and it is worth including European stocks in their diverse portfolio.
Latin America: Can Revival last?
Stocks gather in the southern US border.
Morningstar’s Latin American equity index has grown by more than 22% so far in 2025 thanks to small markets in Brazil, Mexico, Colombia and Chile. Again, the weakening of the dollar has boosted the stock returns of unharmed US investors. This shows a turnaround from a loss of more than 25% on the 2024 US dollar terms.
Each Brazil faces serious financial challenges. In Mexico, the outcomes of elections on both sides of the border have dented emotions.
My colleagues on Morningstar’s Research Investment Team have identified Brazil as the most potential global equity market in the next decade. Latin American stocks are volatile, but they stand out more.
REITs, especially those outside the US, are outperforming
Real estate investment trusts have also risen double digits this year outside the US. Many regions’ real estate sectors are vibrant and are strengthened by low or falling interest rates.
How about the US? The Morningstar US REIT Index is far behind the 2025 Morningstar Global Market Ex-US REIT Index, but is in positive territory ahead of the wide US stock market. Interest rates in the US, which are believed to be staying longer, are considered negative for real estate. That said, REIT yields are attractive, and property is a “real asset” that acts as an inflation hedge.
Diversification ensures exposure to unloved asset classes
US megacap technology-oriented stocks have worked for so long that many investors thought they were the only game in town. Coming in 2025, it was hard to imagine how the epic Seven would be knocked out of their perch. The rise of artificial intelligence, widely seen as “larger than the Internet,” seemed merciless. No one saw the Deepseek AI coming, and few predicted how much tariffs would destroy.
Gravity is also a powerful force in investing. US stocks, particularly in terms of market growth, have posted returns well above historic levels in 2023 and 2024. Their losses in 2025 can be considered a return to the average or a return to the long term average.
The surprising winners of 2025 show that investment performance is dynamic. Paradoxical bets can make a profit, but they can also take some time to be rewarded. Investors diversifying by geography, style and market capitalization are also well placed to benefit from changes in leadership.
Dan Lefkovitz is a strategist at the Morningstar Index.
This article was provided to the Associated Press by Morningstar. For more market content, visit https://www.morningstar.com/markets.
