Key Takeaways
- Global and European large-cap blend strategies attracted EUR 58.6 billion as investors favored broad diversified equity exposure.
- Fixed income strategies attracted EUR 62.7 billion over the quarter, down from EUR 90.6 billion in Q4 2025.
- Within thematic funds, technology funds suffered outflows while security funds attracted inflows.
European open-end funds and ETFs gathered EUR 184.2 billion in the first quarter of 2026, a figure that improved on the EUR 154.3 billion recorded in Q4 2025 but masks a quarter pulled in sharply different directions. The bulk of flows arrived in January and February, but March reversed course with net outflows of EUR 18.7 billion amid the Iran war as investors chose to hold cash rather than deploy capital.
Beneath the headline total, the quarter was defined by stark divergences: between passive and active, between value and growth, and within thematic strategies between geopolitically-driven winners and a category that continues its long structural decline.
Passive equity funds drew EUR 108 billion in the first quarter, but the composition of those flows tells the more interesting story. Growth-focused strategies shed EUR 23.3 billion across global, US, and European categories, as investors grew increasingly concerned about what they perceived as excessive AI infrastructure spending and the competitive threat that AI enhancements pose to established software businesses. It was the first quarter in over a year that Sector Equity Technology logged net outflows, at EUR 5.3 billion—hardware companies held up somewhat better than software, but not sufficiently to shift the overall direction of travel.
Global and European Large-Cap Blend Funds Attracted Inflows
The counterweight came from global and European large-cap blend strategies, which together attracted EUR 58.6 billion as investors favored broad diversified equity exposure over concentrated growth bets. Emerging market equities gathered EUR 20.1 billion—nearly double the prior quarter’s figure—supported by a weaker US dollar, improving fiscal positions across key emerging economies, and the lagged effect of Federal Reserve rate cuts.
That momentum stalled abruptly in March as the Middle East conflict sparked fears over oil shortages and supply chain disruption, prompting a sharp pullback from EM exposure. The quarter’s equity story was ultimately one of rotation rather than wholesale retreat: Investors were not abandoning equities, but they were becoming considerably more selective about which ones they held.
Fixed Income: Active Managers Win the Trust Contest
Fixed income attracted EUR 62.7 billion over the quarter, down from EUR 90.6 billion in Q4 2025, with the March reversal in emerging market bond sentiment accounting for much of the shortfall. The most significant feature of the fixed income picture, however, was the scale of the preference for active management: EUR 49 billion went to active bond funds against EUR 13.6 billion to passive equivalents, a near-fourfold advantage that has widened consistently since 2024. In an environment shaped by oil price shocks, central banks pausing rather than cutting, and inflation risk that has reemerged as a genuine concern following the Middle East conflict, investors continued to direct capital toward managers with the flexibility to navigate across sectors and geographies.
Global flexible bond funds added EUR 8.8 billion in Q1, extending a run of strong gathering that totaled EUR 60 billion across the whole of 2025. Emerging market bond funds had a broadly positive quarter, with local currency strategies attracting EUR 6.7 billion, buoyed by US dollar weakness and elevated real yields in key markets—though both hard currency and local currency categories saw outflows in March as geopolitical risk intensified. High yield and corporate credit also suffered as risk appetite contracted, with investors unwilling to hold spread exposure against a backdrop of mounting inflation uncertainty and slower growth fears.
European Thematic Funds: Outflows Slow
Thematic funds have now surrendered EUR 114 billion since their mid-2023 peak, and the first quarter added a further EUR 4.1 billion to that total—a somewhat less severe pace than the EUR 9.1 billion lost in Q4 2025, though the direction of travel remains unchanged. Technology-themed funds were the principal drag, with digital economy strategies and multi-technology funds driving the bulk of redemptions, and AI and Big Data switching from modest inflows in Q4 2025 back to outflows. It is the first time in over a year that AI-themed flows have turned negative, a meaningful signal that investor enthusiasm for the theme is eroding even as the technology continues to dominate corporate and political discourse.
There were selective bright spots within the broader decline. Security funds attracted EUR 2.7 billion, underpinned by rising European defense spending commitments and a direct geopolitical tailwind, with WisdomTree Europe Defence ETF WDEF alone gathering EUR 1.1 billion. Physical World strategies turned positive for the first time in several quarters, led by Energy Transition and Alternative Energy funds, with uranium-related strategies among the standout performers as energy security concerns rose alongside oil prices.
These pockets of strength are real, but they do not yet offset the weight of redemptions elsewhere in the thematic universe, where investor appetite for paying a premium for a narrowly-defined investment theme has clearly diminished and shows little sign of recovering.
UK-Domiciled Funds: Structural Outflows in a Quarter of European Recovery
The broader European picture tells a story of capital flowing in but UK-domiciled funds tell the opposite. UK-registered open-end funds shed GBP 10.7 billion in the first quarter of 2026, the latest installment in a run of structural outflows that has persisted for the better part of three years. On a rolling twelvemonth basis, UK-domiciled funds have now lost GBP 61 billion in net flows. The structural shift of UK investor capital away from domestically registered funds—and toward European-domiciled vehicles and direct platform exposure—is not a cyclical wobble but a durable trend with roots that predate the current market environment.
Within that picture, two categories stood out as disproportionate drags. Global large-cap growth funds shed GBP 3.6 billion in the quarter, with Fundsmith Equity Fund alone accounting for GBP 1.7 billion of that total. UK domestic equity categories compounded the pressure: UK large-cap equity, UK equity income, UK flex-cap, and UK small-cap together shed close to GBP 4.8 billion—a signal that the long-running underweight of UK equities among domestic investors deepened further into 2026.
Not everything bled. Global corporate bond funds attracted GBP 1.7 billion, led by LGIM Global Corporate Bond Fund with GBP 1.1 billion—a beneficiary of the same rotation toward investment-grade credit that showed up across the wider European dataset. Money market funds gathered GBP 1.2 billion, a quiet reminder that a portion of UK savers chose to sit in cash while waiting for clarity on rates and the geopolitical outlook. Emerging market equity added GBP 0.9 billion, led by active managers including Ninety One Emerging Markets Equity Fund, which attracted GBP 592 million in the quarter. In a period where most of the UK-domiciled universe surrendered assets, it was credit, cash, and selected emerging market equity that held the line.
This article is taken from the latest Morningstar report on Q1 European open-end and ETF flows, which can be downloaded here.
