Investors are pulling out of U.S. equity ETFs en masse, while European trackers are experiencing a record inflow.
Morningstar reports that the outflow from U.S. equity ETFs since April 2—when the United States announced significant import tariffs for most of its trading partners—is larger than during the first quarter of 2020.
Currently, there has been an outflow of 4.8 billion euros from U.S. ETFs listed in Europe, compared to 4.3 billion euros when stock markets crashed five years ago due to the Covid-19 crisis.
Although this movement has accelerated since “Liberation Day,” the exodus from the U.S. had already begun in January of this year, when Trump entered the White House. Kenneth Lamont, head researcher at Morningstar, identifies increased geopolitical uncertainty as the primary driver, fueled by Trump’s deglobalization policies.
In an interview with Investment Officer, Lamont also pointed out fears that other regions might retaliate—not just by imposing their own tariffs, but through other measures as well. He noted it is not unlikely that Europe could target Big Tech. “This is an area where the U.S. could be hit hard.” Just last week, Brussels fined Meta and Apple a total of 700 million euros for violating the Digital Markets Act (DMA), which aims to curb the power of large internet companies.
“Europe has long been dependent on the U.S. for security and technology, among other things, but that must change now that the image of the U.S. as a reliable partner is gradually eroding.”
From a historical perspective, Blackrock considers the capital flight from U.S. equity ETFs to be relatively mild. “It is more a flattening of inflows,” said chief strategist Roelof Salomons to Investment Officer. “Some cracks are beginning to appear in American exceptionalism.”
Europe first
According to Lamont, it is no surprise that significant capital is flowing from the U.S. into Europe. Since April, Morningstar has seen a nearly 1.9 billion euro inflow into the region, continuing a trend that was already visible in the first quarter of 2025. At that time, an impressive 24.4 billion euros flowed into European equity ETFs, compared to 8.2 billion euros into American trackers.
Blackrock’s own research confirms a similar trend. The U.S. asset manager reports a record inflow into European equity ETFs over the past month, with the previous peak dating back to March 2015. German equities, European industrials, and midcaps saw record inflows last month, according to Blackrock.
“Money is flowing back into Europe that had been leaving the region for years,” Salomons said. “Of the hundreds of billions that were pulled from Europe, a few dozen billion are now returning.”
According to Salomons, there are several reasons behind this shift. The growth gap between Europe and the rest of the world is narrowing, monetary policy is more supportive, and valuations are more attractive than in the U.S. As a result, Blackrock notes that the discount on European stocks compared to American stocks has narrowed from 40 percent at the beginning of the year to 30 percent now.
“For ten years, investors had little reason to invest in Europe, but that is changing rapidly,” said equity strategist Rebecca Chesworth of State Street SPDR ETFs. “Europe is showing growth again, valuations are low, and there is now a fear of missing out. With everything happening around the world, investors do not want to take on too much risk. Thanks to its defensive profile, Europe seems particularly attractive.”
Chesworth also noted that the United Kingdom is increasingly coming into focus. “The country has gone through a difficult time, but there is now a stable government and valuations are low.”
However, ETF data from State Street shows there was still an outflow from British equities last month, despite the strong performance of U.K. stocks in recent weeks. “We expect that to reverse in future flows. The U.K. is increasingly seen as a safe haven and also has a special relationship with Trump,” Chesworth added.
A lasting trend
What do these shifts in capital flows mean for the long term? Lamont and Chesworth do not expect the shift from the U.S. to Europe to end anytime soon. “Certainly not under President Trump,” said the Morningstar expert.
This could mean that stock market gains will be more broadly distributed, Blackrock suggests. “It will become less of a one-trick-pony market,” said Salomons, referring to the seven major tech stocks that have driven stock market gains worldwide in recent years.
Blackrock also notes that investors now demand a higher risk premium for U.S. government bonds, as a lot of debt needs to be refinanced in an environment where inflation is higher than in Europe.
“In recent weeks, we have seen that when stock markets weakened, investors did not turn to U.S. bond markets, and the dollar remained weak. These are signs that capital is moving to other parts of the world,” Salomons concluded.