European ETFs Witness Record Inflows in Q1: Here Are the Winners

U.S. investors funneled a record $10.6 billion into exchange-traded funds (ETFs) focused on European stocks in the first quarter, seven times the inflows recorded a year earlier, according to BlackRock data, as quoted on Reuters. This surge marks a notable shift in investor sentiment toward European equities.

Shift Driven by U.S. Market Uncertainty

Economic uncertainty fueled by U.S. President Donald Trump’s tariffs and policies has led investors to seek opportunities abroad. Additionally, upbeat GDP growth in Europe, cheaper stock valuations, not much tech dependence, easy monetary policy and less chances of renewed inflation have sparked investors’ interest in Europe ETFs (read: Europe ETFs Beating S&P 500 in 2025: Here's How).

Reversal in Investment Trends

Since Russia’s invasion of Ukraine in February 2022, European ETFs suffered $6.4 billion in net outflows, per BlackRock data. However, this year’s bounce represents a massive swing in sentiment.

For three of the last five years, investors have preferred U.S. technology stocks like NVIDIA (NVDA) over European equities. Now, international stocks—particularly in Europe—are regaining traction.

Deregulation and Fiscal Policies Boost Confidence

Tim Seymour, founder and chief investment officer of Seymour Asset Management, attributes Europe’s resurgence to its faster pace of deregulation compared to U.S. and Germany’s ambitious fiscal policies under conservative leader Friedrich Merz, a likely future chancellor, as quoted on Reuters.

BlackRock’s iShares MSCI Germany ETF EWG has already received over $1 billion in net inflows this year, doubling its total assets under management—a record for the 29-year-old fund.

Surge in Defense Sector Investments

European defense stocks have attracted massive investor interest as regional leaders have boosted their military spending. The Select STOXX Europe Aerospace & Defense ETF EUAD, launched last October, has accumulated $469 million in assets this year, taking its total to $476 million.

Polish Stocks Win in Value

iShares MSCI Poland ETF EPOL returned 34.2% in Q1 2025. Poland’s economy did better than expected last year, with a preliminary estimate of GDP growth for the full year at 2.9%, up from the 2.8% consensus forecast.

With Q1 2025 now behind us, most forecasters are continuing to suggest that it will move upward to 3.0% or above. This upbeat momentum helped Polish stocks to outperform. Also, the government’s pledge to invest tens of billions of euros in transportation and energy infrastructure, including plans to build its first nuclear power plant by 2026, strengthen the Polish stock rally.

Any Laggard?

Not all European markets are benefiting. ETFs investing in British stocks, such as the iShares MSCI United Kingdom ETF EWU, continue to experience net outflows, indicating that the Eurozone is gaining more traction, not the broader Europe.

Moreover, several points of weakness in the United States probably have shifted the trend toward Eurozone investing. But sustained earnings growth and economic improvements are necessary for this trend to continue. Plus, any trend reversal in the United States, pickup in AI rally or favorable Trump trade policy may again sending the investing trend back to the United States.

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This article originally published on Zacks Investment Research (zacks.com).

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