European Fund Market Trends in Q1 2025

European fund flows started the year on solid footing, with investors showing renewed interest in bonds, pulling back from sustainable strategies, and shifting equity exposure closer to home.  

European open-end and exchange-traded funds brought in EUR 161 billion during the first quarter, led by strong demand for fixed-income products and a record-breaking quarter for ETFs. This reflects ongoing resilience in the face of global economic and policy uncertainties. 

For advisors, these trends offer key signals as to where client sentiment is headed and where to look for opportunity or caution when positioning portfolios for the months ahead.  

This article is adapted from the Morningstar Europe Open-End and ETF Flows report, highlighting regional trends, asset growth, and new fund launches from the first quarter of 2025. Download the full report to see where the money is going and why it matters. 

Fixed-income strategies emerged as the clear front-runners in Q1 2025, amassing EUR 83 billion in net flows. Investors increasingly sought defensive and flexible approaches amid market uncertainty and tightening monetary policy.  Some of those strategies included: 

• Ultra Short-Term Bonds emerged as the most popular fixed-income category, securing EUR 12 billion inflows, supported by attractive yields and inflation-hedging properties.  

• Swiss Franc (CHF) Bond Funds saw EUR 4.4 billion in new investments as investors turned to the Swiss franc as a safe-haven asset, balancing dollar volatility concerns.  

• Global Flexible-Bond Strategies continued to attract interest, particularly for their active management approach, which proved valuable during prolonged market volatility.  

• Emerging Market Debt saw a resurgence with notable inflows after two years of consistent outflows as investor sentiment improved.  

These trends highlight a cautious but opportunistic investor mindset, emphasizing the demand for fixed-income products as part of a defensive portfolio strategy.   

For the first time since 2018, environmental, social, and governance funds experienced EUR 1.1 billion in outflows during Q1 2025, reflecting shifting investor sentiment and broader regulatory fatigue.   

• Active ESG strategies bore the brunt of the losses, recording EUR 4.4 billion in outflows.  

• Meanwhile, passive ESG funds managed to secure EUR 3.3 billion in inflows, albeit at their lowest levels in years.  

The decline can be attributed to several years of disappointing performance, delays in regulatory updates within Europe, and a reduction in sustainability-related support in key global markets.  

These headwinds contrast sharply with broader trends across conventional funds, which achieved EUR 143 billion in inflows during the same period. This divergence underscores the importance of carefully selecting ESG strategies that align with both client values and long-term investment goals.   

The European ETF and exchange-traded commodity market reached a new milestone in the first quarter of 2025, collecting EUR 90.8 billion in net inflows, the highest quarterly total on record. This marked an increase from EUR 86 billion in the fourth quarter of 2024 and brought total ETF and ETC assets to EUR 2.20 trillion.  

This trend was largely driven by policy uncertainty following the inauguration of President Donald Trump and a growing preference among European investors for regionally focused strategies.  

Equity ETFs continued to dominate inflows, accounting for EUR 70.2 billion of the quarterly total. The sharp deceleration in US equity ETF demand stood out: flows into US large-cap blend equity ETFs dropped to EUR 6.9 billion, down from EUR 37.6 billion in the previous quarter.  

In contrast, Europe and eurozone large-cap blend equity ETFs saw a resurgence, collecting a combined EUR 14.4 billion. This shift reversed a multi-quarter trend and underscored investors’ pivot toward European equities after prolonged outflows from the region. 

European equity funds were beneficiaries of waning confidence in US policy direction and a broader desire for home-market exposure.  

Within the thematic space, investor preferences showed a stark divide. While thematic funds overall have lost EUR 72 billion since June 2023, defense-focused ETFs bucked the trend in Q1 2025. Social-theme ETFs, especially those tied to security and defense, stood out, with the Van Eck Defense ETF alone drawing more than EUR 1.5 billion in flows.  

The surge followed significant government announcements, including Germany’s proposed EUR 1 trillion defense and infrastructure package and the UK’s commitment to raise defense spending to 2.5% of GDP by 2027. Despite the broader pullback from physical-world themes like energy and resources, select thematic strategies aligned with geopolitical priorities are clearly gaining traction among European investors.  

The following providers are driving flows in the European ETF market, showcasing their strategic positioning and investor confidence in their offerings. The values presented are in EUR billion. 

1. Black/iShares - 30.5   

2. Vanguard - 10.8   

3. Amundi - 8.0  

4. State Street - 7.6  

5. PIMCO - 6.6  

6. HSBC - 6.2  

7. Nordea - 5.8  

8. UBS/Credit Suisse - 5.6  

9. JPMorgan - 5.4  

10. DWS/Xtrackers - 5.0  

• Portfolio Positioning: The surge in bond fund flows suggests a defensive approach is prudent amid uncertain economic conditions. Advisors may look to incorporate ultra-short-term and flexible-bond strategies to balance risk.  

• Active vs. Passive Split: The contrasting fortunes of active and passive ESG funds highlight the need to differentiate between these options when integrating sustainable investments into portfolios.  

• Market Sentiment: A rotation out of US equities to European markets reflects shifting investor priorities. Advising clients to diversify geographically, emphasizing European equities, could potentially position client portfolios for growth. 

European fund flows in Q1 2025 deliver a clear message to advisors and investors alike. Market uncertainty continues to drive defensive strategies, while opportunities lie in areas like European equities and selective thematic investments. By aligning portfolios with these trends, advisors can help clients achieve both defensive stability and growth potential in the months ahead.  

Stay ahead of market trends and client expectations with Direct Advisory Suite, your all-in-one platform for fund flow analysis, portfolio management, and investment insights.  

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