According to BlackRock data, U.S. investors allocated a record $10.6 billion into exchange-traded funds focused on European stocks in the first quarter, a significant increase from the previous year. Amid uncertainties caused by President Donald Trump's policies and tariffs, European equities have become an attractive option for investors. This trend has been coined "Make Europe Great Again" by Tim Seymour, founder of Seymour Asset Management.
Following a period of net outflows totaling $6.4 billion after Russia's invasion of Ukraine in February 2022, there has been a notable shift in sentiment towards European ETFs. This reversal has caught the attention of market analysts, including Kristy Akullian, the head of iShares Investment Strategy at BlackRock.
In the past years, investors tended to move away from European ETFs trading in U.S. markets and gravitated towards domestic options, particularly in technology stocks like Nvidia. However, Seymour highlights a renewed interest in international, specifically European, stocks after more than a decade.
Seymour emphasizes that the current European breakout differs from previous trends. He notes that Europe is undergoing deregulation at a quicker pace than the U.S., making reference to significant fiscal announcements in Germany. This includes ambitious spending plans announced by Friedrich Merz, leader of Germany's conservatives and the likely future chancellor.
BlackRock's Akullian pointed out that the iShares MSCI Germany ETF has attracted over $1 billion in net inflows this year, doubling its total assets under management. Notably, defense stocks have also piqued investor interest following European leaders' calls for military boosts. The Select STOXX Europe Aerospace & Defense ETF has seen a rise in assets to $476 million, with $469 million in inflows this year.
Emerging optimism in Europe has been acknowledged by Ronald Temple, chief market strategist for financial advisory and asset management firm Lazard. U.S. policy actions may have prompted Europe to overcome its inertia, he stated. Despite the positive sentiment, some caution that sustained growth in European earnings is essential for the trend to extend past short-term gains, as mentioned by Akullian.