ETF investors turn to Europe’s expanding range of opportunities
KEY POINTS
US political and policy uncertainty, especially over international trade, has seen more fixed income and equity exchange-traded fund (ETF) investors pivot to Europe in a bid to secure potentially better long-term returns.
Such has been their rise in popularity that if European ETFs can maintain their present attraction to investors, 2025’s overall inflows will hit a new all-time high, with estimated net inflows between €300bn and €320bn, according to data from Lipper Alpha Insight.1
Overall, it has been a compelling rebound for a region that has been enduring sluggish economic growth alongside lacklustre investment returns - in 2024 the Euro Stoxx 600 index achieved a total return of 2% versus 25% for the US blue-chip S&P 500.2 But this differential has since markedly changed.
A fortified economy
Europe has been laying the economic groundwork for a comeback; the Eurozone is not just the world’s largest trading bloc – today a spate of new initiatives have the potential to entrench superior future growth. Beyond the backdrop of US-driven geopolitical uncertainty, Europe has a wealth of ETF investment potential. It is a leader in sustainability, while potential changes in global trade and security relationships provide it with an opportunity to generate an even stronger unified economy and financial market infrastructure.
Take Germany, which has unveiled a major infrastructure and defence initiative, with investments of €500bn over the next 12 years in sectors including infrastructure, construction, healthcare, defence and renewable energy.
On this latter issue, Europe appears to be leading the way – global clean energy investment needs to rise to $4trn on an annual basis, and Europe looks set to benefit, creating new potential opportunities for ETF investors.3 This is supported by the 2019 European Green Deal, which aims to make Europe the first climate-neutral continent by 2050 and is targeting multiple areas, from boosting clean energy investment to climate technology innovation.
- Friday Facts: European ETF Industry Review, August 2025 | Lipper Alpha Insight | LSEG
- Source: FactSet, Data as at 31/12/2024
- Net Zero by 2050 – Analysis - IEA
Market returns
Europe is home to a multitude of innovative, world-leading companies across multiple sectors. The region’s 2025 success is clear in its performance numbers – year to date, Europe’s Stoxx 600 is ahead by 25% in US dollar terms, while the S&P 500 and MSCI World are up 13% and 16% respectively.4 And Europe’s equity markets still offer value, with their shares trading at a significant valuation discount compared to the far more richly priced US.
This factor, alongside higher dividend yields – with the average yield at some 3.3% - will provide additional attraction to ETF investors. The outlook remains bright too; forecasts show that the expected earnings growth for the Euro Stoxx universe of companies to run at an annual rate of 7.6%, with the 2026 earnings-per-share consensus estimate at €40.20 compared to €36.10 for this year.5
Equally, in the fixed income universe, European corporate bond markets continue to be supported by resilient fundamentals, decent yields and strong inflows. Demand is likely to increase further as investors look to lock in these attractive yields.
Euro-denominated bond issuance by non-euro area corporations has risen significantly in 2025 to almost €100bn by around the mid-year mark, versus an average of €32bn over the same period in the past five years.6 And given worries over US policy, there is the potential for more international investors to raise their European bond allocation.
- Source: FactSet, data as of 25/09/2025
- Paranoid | AXA IM UK
- The euro area bond market, ECB
Challenges remain
There are inevitably challenges to be tackled; trade tariffs will have an impact, and after more than three years, there remains no clear end in sight to the Ukraine war. But if the conflict can ultimately be resolved, and if the wider geopolitical backdrop calms, it could herald a new era for Europe as the benefits of renewable energy funding coupled with other infrastructure projects should provide robust long-term underpinnings for economic growth. Fundamentally, however, we believe the region will continue to offer ETF investors an ever-growing range of investment opportunities across equities and fixed income.
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