European Investors Reassess US Equities as Bond Inflows Surge

European investors are rethinking their approach to US equities as the latest data from LSEG Lipper suggests a shift in sentiment. While 2024 saw strong inflows into the European fund industry—pushing assets under management (AUM) beyond €15.5 trillion—early 2025 has brought signs of caution. In particular, US equity ETFs experienced significant outflows of €1.44 billion in February, reflecting investor hesitation amid ongoing market uncertainty.

US Equity Appetite Softens

After a robust €100.3 billion inflow into US equity funds in 2024, the enthusiasm appears to be fading. January 2025 saw a strong €10.9 billion in inflows, but February’s figures plummeted to just €914 million—“the weakest inflows in months.” The pullback in US equity ETFs suggests that investors may be responding to concerns about “interest rate uncertainty and geopolitical risks.”

Bonds Remain a Core Allocation

ETFs Reshape the Market

The European fund industry saw record-breaking demand for ETFs in 2024, with inflows reaching €256.4 billion. The LSEG Lipper report notes that ETFs are “set to further challenge both actively and passively managed mutual funds,” reinforcing the broader trend toward passive investing. Should this trajectory continue, passive strategies could become the dominant approach to equity investment.

Liquidity and Sustainable Investing Trends

Investors have also maintained elevated cash allocations, with money market funds absorbing €274.4 billion in inflows last year. This suggests that many are “keeping liquidity on hand, potentially waiting for clearer signals from central banks before making longer-term commitments.”

Meanwhile, the sustainable investing landscape is in transition. Funds aligned with SFDR Article 8 attracted €280.4 billion in inflows in 2024, but Article 9 funds experienced outflows of €27.8 billion. The report suggests that ESG investment strategies “may be evolving in response to regulatory and market shifts.”

Looking Ahead

Dewi John, Head of Lipper EMEA Research, summarized the shifting landscape: “With US equity demand softening and bond inflows remaining strong, European investors seem to be reassessing risk exposures as they position portfolios for the months ahead. The coming quarters will reveal whether these shifts are temporary or signal a longer-term recalibration in global asset allocation.”

As 2025 progresses, the European fund industry will continue to navigate a complex investment environment, balancing equity exposure with a growing preference for bonds, ETFs, and liquidity reserves. Whether these trends persist will depend on macroeconomic developments and investor sentiment in the months ahead.