Morningstar has published a review of the European open end and exchange-traded (ETF) fund market for the first quarter of 2025.
Giovanni Cafaro, Analyst, Fixed Income Strategies at Morningstar, commented:
“European funds saw strong inflows in Q1, totalling EUR 161 billion, continuing the positive trend from last year’s gains. Bond funds emerged as the primary beneficiary, attracting EUR 83 billion during the quarter, as market concerns over economic growth, geopolitical tensions, and policy uncertainty weighed on investor sentiment. Within fixed income, investors favoured defensive and flexible approaches – EUR ultra short-term bond funds led with the highest inflows, while CHF bond funds drew attention as safe-haven assets amid market uncertainty.
“Equities saw their fifth consecutive quarter of inflows, but at a slower pace compared to Q4 2024, with large-cap blend equity funds taking the lead. Flows into US large-cap equity funds slowed amid US economic policy uncertainty, while Europe large-cap equity strategies saw renewed interest after three years of outflows. Commodities funds also made a strong comeback, drawing over EUR 5 billion in Q1 after a period of outflows, driven by inflation fears and an appetite for hedges against the recent market volatility.
“Sustainable funds faced setbacks, with investors withdrawing an estimated EUR 1.1 billion amid regulatory changes and shifting political sentiment toward the space. Meanwhile, defense ETFs saw a surge in interest following increased defense spending announcements, though broader thematic funds have struggled overall as investor enthusiasm has gradually slowed.”
Key findings for Q1 2025 include:
European funds gathered EUR 161 billion in flows in the first quarter of 2025. Bond funds topped the ranks at EUR 83 billion, equity funds saw softer inflows than last quarter because of weakening market sentiment, and commodities funds gained popularity amid inflation fears.
Active funds kept their momentum, with their strongest quarterly gain since 2021. Passive funds continued to grow, now approaching 30% of total net assets. Bond funds led active inflows, while equity funds accounted for most of the passive inflows.
Global large-cap equity funds led first-quarter inflows into the asset class, supported by strong demand for passives, which captured 70% of net flows. The appetite for US equity strategies cooled amid policy uncertainty, while investors pivoted to European equity funds following prolonged outflows.
Defensive and flexible strategies topped fixed-income flows. Funds in the EUR ultra short-term bond Morningstar Category led the quarter’s inflows, while CHF bond funds saw traction as investors sought safe havens amid dollar-related uncertainty. Global flexible-bond strategies kept their momentum, appealing to investors valuing active strategies in volatile markets. Global emerging-markets bond funds returned to positive flows in aggregate after two years of heavy redemptions.
Sustainable funds hit a rough start in 2025. Investors pulled out an estimated EUR 1.1 billion from the category in the quarter as poor performance, regulatory fatigue, and political shifts damped investors’ appetite. Active funds bore the brunt with EUR 4.4 billion in outflows, while passive strategies brought in EUR 3.3 billion.
Defense exchange-traded funds gained strong support after defense spending announcements boosted investors’ enthusiasm toward the sector. In aggregate, however, thematic funds have struggled recently, losing EUR 72 billion since June 2023. Physical world-focused funds have been hit the hardest, including subthemes like energy and resources.
European ETFs and exchange-traded commodities set a record in the first quarter with EUR 91 billion in inflows. Equity ETFs led the way, while demand for US equity exposure slowed as European investors turned to domestic markets. Fixed income ETFs saw steady demand, particularly for government bonds, and commodities ETFs continued to draw interest.
Continued popularity of passive strategies drove inflows for major players like BlackRock, which gathered EUR 31 billion during the quarter. Conversely, Aberdeen (formerly Abrdn) and Eurizon suffered EUR 6 billion in outflows following larger losses in 2024.
