US Vs. Europe ETFs: Is The Tide Turning?

ETFs that follow U.S. and European equities have witnessed a change in investor sentiment over the past year. While historically, the U.S. has dominated ETF market performance and inflows, European equities have beaten American equities since the beginning of 2025. This has raised discussion on whether European ETFs are a better investment option for investors in the current scenario.

According to a report by the Financial Times, European stocks have outperformed U.S. stocks by more than 10% since January, despite Trump's “America First” policies. A number of factors have been responsible for this outperformance.

European countries, led by Germany, have strengthened their defense expenditures due to geopolitical tensions. Germany’s recent move to relax fiscal restraint is its most important policy shift to date since reunification. China’s rebound on the economic front has also supported European exports.

Also Read: U.S. Stocks Sink, Foreign Markets Soar: 3 ETFs to Ride the Wave

European Investors Pulling Out Of U.S. ETFs

A prevailing trend recently is that European investors are stepping back from U.S. equity ETFs. Europe-domiciled ETFs that have invested in U.S. equities saw outflows of $510 million in February, compared to November 2023, when these funds saw record inflows of $22.8 billion, accounting for nearly 80% of total European ETF purchases.

On the other hand, U.S. investors have remained loyal to their home market. U.S. equity ETFs received $48.1 billion in February, accounting for nearly half of total ETF inflows in the country, according to etf.com.

These numbers underscore the divergence of investor sentiment between the U.S. and Europe.

What's Behind the Shift?

Benoit Sorel, the global head of ETF, indexing, and smart beta at Amundi, noted several reasons behind European investors’ dramatic withdrawal from U.S. equities. In an interview with the Financial Times, he referred to “geopolitical developments with progress towards the resolution of the conflict in Ukraine for Europe and inflationary measures in the U.S.”

The other factors contributing to this are the Trump administration’s tariffs and threats of tariffs, the diverging monetary policies of the U.S. and Europe, and worries regarding the growth and valuations of U.S. mega-cap tech stocks, as per Sorel.

Also Read: Money Flowing Out Of US Stock Market Into Europe, “A Period Of Transition” – Says Trump

ETF Market Growth: US Vs Europe

Notwithstanding the contrasts, both the U.S. and European ETF markets have been rising robustly. According to EY, aggregate ETF AUM in Europe was nearly $2.3 trillion by the end of 2024, due to the rapid expansion of online savings retail accounts.

Another important aspect to highlight is that European ETFs have grown faster than their U.S. counterparts mainly because they have historically had a lower percentage of registered funds, EY said.

Looking ahead, EY forecasts European ETFs to record double-digit growth, with retail adoption propelling regional ETF assets to $4.5 trillion by 2030.

Tariffs And Market Volatility

The “United States versus the rest of the world” trade battle has made ETF investment trends more complex, according to etf.com. The policies have contributed to volatility in American markets, which are already prone to being volatile under conditions of uncertainty. On the other hand, European ETF investors appear to be gaining from this volatility, raising an eyebrow over the long-sustained notion of American market superiority.

Some U.S. and Europe ETFs to consider

Now that we are familiar with the latest trends, expectations and outlook for both markets, here are some ETFs to consider:

U.S. ETFs:
- SPDR S&P 500 ETF Trust SPY – Tracks the S&P 500, which represents 500 of the largest publicly traded companies in the U.S. The fund charges an expense ratio of 0.095%, and its holdings include major blue-chip stocks across various sectors such as technology, healthcare, and financials. Apple, Microsoft and Nvidia are the top three holdings currently.
- Invesco QQQ Trust QQQ – Tracks the Nasdaq-100, which includes 100 of the largest non-financial companies listed on the Nasdaq Stock Market. Managed by Invesco, QQQ is heavily weighted toward the technology sector, with top holdings often including giants like Apple, Microsoft, Amazon, and Nvidia. The fund boasts high liquidity, tight bid-ask spreads, and a relatively low expense ratio of 0.20%.

European ETFs:
- iShares MSCI Europe ETF IEV – Tracks broad large- and mid-cap companies across developed European markets. IEV aims to replicate the MSCI Europe Index, which includes stocks from countries such as the United Kingdom, Germany, France, Switzerland, and the Netherlands. Companies like Nestlé, Roche, ASML, and LVMH are among the ETF’s holdings. With an expense ratio of 0.59%, the ETF is a convenient and cost-effective option for those looking to diversify their portfolios with European equities while cutting single-country risk.
- Vanguard FTSE Europe ETF VGK – Covers large-, mid-, and small-cap stocks across developed European markets. It tracks the FTSE Developed Europe All Cap Index, covering companies from major economies such as the United Kingdom, Germany, France, Switzerland, and the Netherlands. The fund is known for its low expense ratio of 0.07%, making it one of the most cost-effective ways to invest in European equities.

A Temporary Rotation or a Structural Shift?

ETF investors are weighing their choices, closely watching larger trends in monetary policy, trade relations, and market valuations. For the moment, the traditional dominance of American markets has been temporarily reversed, but it will be interesting to see how long this trend will last.

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