European funds received inflows of EUR 131 billion in the second quarter of 2025, down from EUR 161 billion in the first quarter, amid ongoing geopolitical volatility and uncertainty about the health of the global economy.
Here are the five key trends for the second quarter.
1. Active Funds for Bonds, Passive Funds for Stocks
As it has been the case since the second half 2024, investor demand remained strong for active fixed income and passive equity strategies. Active bond funds saw EUR 50 billion in net inflows, compared with EUR 16.2 billion for passive peers. On the equity front, passive led with EUR 60 billion, while active equity funds saw outflows of EUR 6.2 billion. Times of changing monetary policy are fertile ground for active managers to show their skills, whereas the preference for mainstream equity exposures supports the ongoing demand for low-cost passive options.
2. The Rotation out of US Dollar Assets Continues
Investors continued to adjust their geographical exposure away from stand-alone US exposure.
In equities, investors either opt for global strategies to diversify country risk—for example, global large-cap blend funds drew EUR 39.3 billion—or actively switch to European markets. The exception is UK equity funds, which continue to bleed money.
Meanwhile in fixed income, the ongoing weakness of the US dollar is prompting renewed appetite for emerging market debt local currency funds. These saw inflows of EUR 1.3 billion in the second quarter, reversing a trend of significant outflows that extends back to 2023.
3. Defense Stock Funds Were Standout Performers in the First half 2025
Security-themed funds have gathered EUR 6.8 billion in the first half o 2025, of which EUR 3.2 billion in the second quarter. Rising defense budgets in Europe and the US are the driving force. Nearly 20 new defense open-end funds and ETFs have been introduced since early 2024, and the bulk of the latest launches—mainly ETFs—specifically focus on the European defense sector.
Defense is the only solid bright spot in the universe of thematic funds, which continue to decline in popularity, with a total of EUR 87 billion in outflows over the past three years to the end of the second quarter of 2025.
4. Short Duration Bond Funds Thrive on Interest Rate Uncertainty
Investors flocked toward short-term bond funds in the second quarter, spooked by possible implications of US tariffs announced in April. Fueled by uncertainty around inflation and the direction of central banks, the EUR Ultra Short-Term Bonds, EUR Diversified Bond — Short Term, and USD Ultra Short-Term Bond categories together brought in EUR 24 billion in flows.
5. Having a Thriving ETF Business Helps
BlackRock topped the quarterly flows league with EUR 20.8 billion, and with a significant lead over peers. This was entirely thanks to its ETF business, while its traditional open-end mutual fund range—including index and active funds—saw outflows over the quarter.
It’s no coincidence that the five largest asset managers in Europe have a successful ETF business in place. However, the noted preference for active fixed income can offer a growth path for active houses with good capabilities on the bond side.
