European investors pulled money from U.S. equity ETFs in February for the first time since May 2023, showing a stark contrast with their American counterparts.

U.S. equity ETFs based in Europe recorded $514.7 million in outflows during February, according to Morningstar Direct data. This reversal came despite an increase in overall European ETF inflows to $35.3 billion during the same period.

The change marks a dramatic turnaround from November 2024, when U.S. equity ETFs attracted $22.8 billion, representing nearly 80% of all European ETF purchases, Morningstar data show.

The shift in European ETF flows signals a potential change in global investment sentiment, coming just months after record inflows and highlighting how performance trends, market valuations and geopolitical tensions could reshape investment flows in 2025.

Performance and Policy Concerns Drive Split

U.S. investors showed continued confidence in their domestic market, with U.S. equity ETFs attracting $48.1 billion in February, accounting for nearly half of all U.S. ETF inflows, according to Morningstar.

Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, sees three distinct factors behind this investment shift.

The combined effect of these factors likely drove European investors away from U.S. markets, though Armour cautioned that "a single data point rarely tells a full story" when assessing whether this trend will persist.

Intertwined Global Markets

The Trump administration's trade policies may be influencing European sentiment, according to Armour, who told etf.com that "reduced or more costly trade with the U.S. forces European companies to find new sources of revenue. Europeans could feel they need to support their local businesses and invest in their region's companies."

At this point, Armour said he considers February's outflow as "the end of a trend of hot inflows for U.S. stock ETFs," though he cautioned, "We will see whether it amounts to a meaningful shift in investor sentiment in the coming months."

Whether this represents a temporary rebalancing or the start of a new trend remains unclear, as Armour noted that he expects “global volatility for a while, but it's unclear which countries' stocks will come out on top. Many U.S. and European stocks depend on global revenue, so these regions' companies are intertwined in global markets."

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