Key Takeaways
- European ETF inflows slumped in March to the lowest level in nearly a year as the Iran war dented sentiment and prompted investors to hold cash.
- Equity flows slowed sharply overall, as energy ETFs drew strong inflows on oil price volatility while financials saw record outflows.
- Bond ETFs flipped to outflows while active ETFs and inflation-linked strategies stood out as rare bright spots.
European ETF investors pulled back sharply in March as the war in the Middle East weighed heavily on market sentiment. After two exceptionally strong months with an average monthly intake of EUR 46 billion, flows into European ETFs and ETCs slowed sharply to EUR 9.4 billion—the lowest since April 2025, the month following sweeping US tariffs announcements. Investors clearly chose to sit on cold hard cash rather than deploy capital.
Despite the abrupt slowdown, the broader picture for the start of the year was robust. Total flows for the first quarter hit a record EUR 101.7 billion, underlining the strength of ETF demand earlier in the year.
Equity Flows Falter While the War Shapes Sector Preferences
Equity ETFs gathered EUR 8.8 billion in March, a fraction of the inflows seen in previous months. Developed-market large-cap equity exposures—particularly global, eurozone, and US strategies—continued to attract interest, reflecting a preference for liquidity and scale.
Flows by Broad Asset Class for the European ETF and ETC Market
But it was at a sector level where we saw the direct impact of how war shapes investment preferences. Energy sector ETFs stood out as the main beneficiary, attracting EUR 1.7 billion in net inflows in March. Rising oil prices and concerns over supply disruptions drove demand. By contrast, financial services ETFs suffered EUR 3.7 billion in outflows, marking the worst monthly result on record for the category. Mounting fears of stagflation—that is, low economic growth, perhaps even recession, combined with high inflation—weighed heavily on financial stocks.
Bond ETFs See Outflows
Bond ETFs reversed course in March, recording EUR 2.4 billion in net outflows after taking in EUR 5.2 billion in February. The last time monthly outflows of a similar magnitude occurred was in 2022, also linked to a war, namely Russia-Ukraine. As was the case then, this reflects investor unease over inflation and recession risks.
Corporate bond categories, both investment grade and high yield, led the outflows. Emerging market debt ETFs, both hard- and local-currency strategies, also saw investors exit positions after a strong run over the past year, as risk aversion increased.
Euro inflation-linked bond ETFs were a notable exception. Having been off the radar for the best part of the past three years, investors poured in EUR 388 million during March, on the rising risk of a sustained period of high inflation.
Falling Markets Weigh on ETF Assets
Market weakness amplified the impact of subdued flows. Assets under management in European ETFs and ETCs declined to EUR 2.80 trillion in March, down from EUR 2.95 trillion in February. The drop was driven almost entirely by capital losses across global equity and bond markets. Real asset products, particularly commodities, also saw assets fall as investors continued to divest from precious metals, especially gold.
Assets Under Management by Broad Asset Class for the European ETF and ETC Market
Active ETFs Continue to Gain Traction
Active ETFs were something of a bright spot amid the broader slowdown. They attracted EUR 2.4 billion in March, accounting for roughly 25% of total ETF flows, a notably high share of low overall ETF market inflows in the month. Looking at quarterly data, flows into active ETFs represented around 7.2% of the entire European ETF market intake, roughly in line with the 7.4% average for 2025. With EUR 85.7 billion in assets, active ETFs now represent 3.1% of the European ETF market, continuing their gradual expansion.
A Cautious Outlook for
March marked a turning point for European ETF markets, with investors stepping back as geopolitical and macroeconomic risks mounted. While the first quarter closed with record inflows, the sharp deceleration in March highlights how quickly sentiment can change.
In the near term, ETF flows are likely to remain highly sensitive to developments in energy prices, inflation trends, and the evolving geopolitical landscape.
