A fund manager who oversees assets worth close to $2 billion told CNBC that the European defense bull run may soon begin to cool off as valuations hit “extreme” levels. Speaking to CNBC’s “Europe Early Edition” on Monday, London-based Stephen Yiu, who manages the £1.4 billion ($1.9 billion) Blue Whale Growth Fund , said he had wound down his exposure to the European defense space. Regional defense stocks have seen an extraordinary rise in recent months, fueled by promises from the European Union , regional governments and the NATO military alliance to drastically hike defense spending. The Stoxx Europe Aerospace and Defense index has gained more than 55% since the beginning of the year. Describing the sector as “extremely interesting,” Yiu explained that, around 18 months ago, his fund began a position in European defense that included allocating capital to Italian defense champion Leonardo . However, he also suggested that the spectacular rate of growth among European defense stocks may have peaked. “I think the issue with European defense — even though we continue to like the companies or the sector — is the valuation has been quite extreme,” Yiu told CNBC. Military aircraft manufacturer Leonardo, which the Blue Whale Growth Fund holds, has gained more than 86% so far this year — and it still isn’t one of the sector’s biggest movers. French maritime systems maker Exail Technologies is up almost 500% year-to-date, while German defense giants Renk , Hensoldt and Rheinmetall have all tripled in value. LDO-IT R3NK-FF,HAG-DE,RHM-DE,EXA-FR YTD line European defense stocks While Yiu’s fund still holds Leonardo stock, it has reduced the size of its holding in recent months. He advised investors to consider valuation in terms of outperformance potential, taking into account how long it could take for Europe’s blockbuster fiscal packages to trickle through to corporate earnings. Yiu argued that seeing the direct impact is likely to take “a few years.” “Compared to the beginning of the year [with] Leonardo, you would have seen it in our top 10 holdings, which would be a big conviction, part of our mandate,” he said. “And over the last few months, you haven’t seen it [because] we have actually taken profits.” He also cautioned that the entry point into European defense stocks “is probably not today.” “The question is, would you still be happy to hold on to it just because it could still contribute to some outperformance?” he added. “I think the answer is yes, but I think the easy money has already been made from European defense at this moment in time.”