Morningstar has published a review of the European open end and ETF fund market for the second quarter of 2025.
Jose Garcia-Zarate, Senior Principal of Manager Research at Morningstar, says: “European fund flows slowed to EUR131 billion in Q2 2025, down from EUR161 billion in Q1, but continued a consistent six-quarter streak of positive momentum. Investor demand remained strong for active fixed income and passive equity strategies. Active bond funds saw EUR50 billion in net inflows, while passive equity led with EUR60 billion. In contrast, active equity strategies recorded minor outflows.
“Bond funds brought in EUR66 billion overall, still ahead of equities for a second consecutive quarter despite being the lowest intake in six quarters. This trend reflects cautious investor sentiment amid economic uncertainty and central bank rate pauses. Shorter-duration bond funds outperformed in both Europe and the US.
“Global large-cap blend funds drew EUR39.3 billion. Investors continued to adjust equity exposure in light of US tariffs and shifting trade policy, benefiting European markets, except for the UK, which continues to struggle. Thematic shifts have also emerged. Defence-themed funds have attracted EUR6.8 billion in H1 2025, driven by geopolitical tensions, rising Western defence budgets and new fund launches.
“Short-term bond funds also gained from tariff-related caution, while emerging market local currency debt rebounded due to a weaker US dollar. Alternative funds saw a standout quarter, with EUR8.5 billion in flows, their strongest quarter in over three years due to renewed interest in cryptocurrencies.”
Key findings for Q2 2025 include:
European funds gathered EUR131 billion in the second quarter of 2025, down from EUR161 billion in the first quarter, but extending the past six quarters’ trend of positive flows.
Investors’ preferences for active fixed income and passive equity funds continue to dictate flows. Active bond funds gained EUR50 billion, while passive bond funds brought in EUR16 billion. In contrast, passive equity funds raked in EUR60 billion, while active equity funds saw minor outflows.
BlackRock topped the quarterly flows league with EUR20.8 billion and a significant lead over its peers. This was entirely thanks to its ETF business.
Global large-cap blend equity funds gathered EUR39.3 billion in flows with passive funds as the dominant choice. The rotation from US to European large-cap equity strategies has been a key trend year-to-date. Growth style equity funds saw outflows owing to uncertainty about the economic outlook. UK equity funds continued to struggle.
Defence funds have been standout performers in the first half of 2025, gathering EUR6.8 billion, of which EUR3.2 billion was in the second quarter. Rising defence budgets in Europe and the US are the driving force. Nearly 20 new defence open-end funds and ETFs have been introduced since early 2024.
Investors flocked towards short-term bond funds in the second quarter, spooked by possible implications of US tariffs. Meanwhile, US Dollar weakness is driving changes in the geographical allocation of bond portfolios. Funds in the Global Emerging Market Debt – Local Currency category saw inflows of EUR1.3 billion in the second quarter, reversing a trend of outflows that extends back to 2023.
Key takeaways for the European ETF & ETC market:
European ETFs and ETCs gathered EUR 65.1 billion in Q2 2025, down from EUR91.3 billion in the first quarter. This was led by a marked slowdown in flows into equity ETFs.
iShares topped the quarterly flows league table with EUR24.5 billion, although this was down from EUR33.3 billion in the first quarter.
Active ETFs gathered EUR5 billion, up from EUR4.7 billion in the first quarter. This represented 7.7 per cent of all flows into ETFs and ETCs in the period. Assets in active ETFs rose to EUR 61 billion from EUR 55.3 billion in the first quarter and represent 2.6 per cent of all assets invested in ETFs and ETCs in Europe.
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