March 2025 was another month with strong inflows (+€24.4 bn) for the European ETF industry. These flows drove the overall flows for the first quarter 2025 up to €87.1 bn. Even as the estimated inflows for March were the lowest monthly inflows into ETFs for the year so far, this level of inflows showcases the strong demand for ETFs from European investors. In fact, if the European ETF industry is able to maintain net inflows at the same level as for Q1 for the rest of the year, it would hit an all-time high for annual inflows on a totally different level than before.
The inflows in the European ETF industry for Q1 2025 were driven by equity ETFs (+€71.3 bn), followed by bond ETFs (+€9.3 bn), money market ETFs (+€5.5 bn), commodities ETFs (+€0.7 bn), and mixed-assets ETFs (+€0.3 bn). On the other side of the table, alternatives ETFs (-€0.1 bn) were the only asset type facing outflows over the course of Q1 2025.
Graph 1: European ETF Flows Q1 2025 by Asset Type (EUR Billions)
Source: LSEG Lipper
One might be surprised that ETFs witnessed such high inflows within the negative and volatile market environment over the course of Q1 2025. Generally speaking, it is not unusual to see strong inflows into ETFs when the markets are in limbo because investors seem to prefer liquid and transparent products in turbulent market environments.
When it comes to the above, the high estimated net flows in the equity segment might look like business as usual upon first viewing, as Equity Global (+€19.9 bn) was dominating the table of the 10 best-selling Lipper Global Classifications for the month. A closer look at the 10 best-selling Lipper classifications, however, shows that the negative trend with outflows from Equity Europe (+€9.9 bn) and Equity Eurozone (+€5.1 bn) has broken in 2025, as investors consistently bought into ETFs from these two classifications over the course of Q1 2025. In other words, it looks like European investors are returning to the “old continent” after underweighting it over a long period of time. It was even more surprising to see Equity Sector Industrials as the fourth best-selling classification for Q1 2025. This may signal a change in the general asset allocation since investors were preferring information technology over the other sectors until January 2025. One could interpret this by saying that the launch of DeepSeek in China drove European investors attention back to the real economy.
Talking about China, European investors haven’t been bullish on China since the COVID-19 pandemic as they saw China as an economy with structural challenges, especially in the real estate sector and with the achievement of the projected economic growth, as the population of China is aging on a relatively fast pace compared to other emerging economies. That said, none of the structural challenges have changed so far, but the launch of the DeepSeek AI showcased that China is able to compete with the Western economies even on the highest technology levels. On the back of these trends, Equity China (+€3.9 bn) was the seventh best-selling Lipper classification over the course of Q1 2025.
Graph 2: Ten Best- and Worst-Lipper Global Classifications by Estimated Net Sales n the European ETF Industry, Q1 2025 (EUR Billions)
Source: LSEG Lipper
One of the real surprises in the estimated fund flow trends was the fact that no bond classification was on the table of 10 best-selling Lipper classifications over the course of Q1 2025. Bond Global USD (+€2.0 bn) was the twelfth best-selling classification for the quarter. There were mixed trends in the bond segment when it came to duration, credit quality, or issuers. The most obvious example for this can be found for investment grade corporate bond classifications. While Bond Global Corporates USD (+€1.2 bn), Bond Global Corporates EUR (+€0.3 bn), and Bond Global Corporates in Local Currencies (+€0.3 bn) enjoyed estimated inflows, Bond GBP Corporates (-€0.005 bn), Bond EUR Corporates (-€1.1 bn), and Bond USD Corporates (-€1.1 bn) faced outflows. Again, this a small number, but trends start often with small changes.
In addition to this, it looks like the trend toward money market products has been established as we saw overall inflows into Money Market ETFs (+€5.5 bn) for the quarter, led by Money Market EUR (+€5.1 bn). Given the somewhat low number of available currencies for money market ETFs, it is no surprise that the estimated net flows are far more concentrated than in the segment of mutual funds. However, one needs to bear in mind that the flows into money market products might be a result of the still somewhat inverted yield curves as investors may wanted to harvest higher interest rates with lower duration risk as in the bond segment. That said, we may see that money market ETFs become a safe haven for ETFs investors who want to reduce their overall risk in the bond segment in the future.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of LSEG.
