Risk or rebalancing? The new geography of ETF flows

• Caroline Baron
  Head of ETF Distribution - EMEA
  Franklin Templeton

A closer look reveals that there is much to be said for classic rebalancing. For years, US equities were overweighted in European portfolios – a reduction to normal levels is therefore obvious. At the same time, providers are also seeing money flowing back into the USA. US mega caps or thematically focused ETFs in particular – for example with targeted tracking error to the benchmark – remain in demand. US exceptionalism is by no means off the table.

The growing demand for dividend strategies is also exciting – not only as a defensive component, but also as an instrument for stabilization in turbulent times Emerging markets are also being given greater consideration again, which indicates a growing interest in global diversification. It is noticeable that investors are increasingly focusing on individual countries rather than entire regions. India in particular is currently at the center of interest – both at institutional level and in the private client business. Despite geopolitical uncertainties, China remains a strategically important market whose attractiveness fluctuates cyclically but never disappears completely. Investors from Asia are also becoming increasingly involved in China. Korea is moving into the spotlight due to its key role in the semiconductor sector, while Brazil is gaining relevance due to its raw material deposits. The better investors understand the local economic drivers, the more targeted their exposure to these markets will be. The criticism of cluster risks – for example in the heavily US-heavy MSCI World – is a view but thanks to the transparency that ETFs offer, investors can decide whether they agree with that way of investing or not. , . Indexed ETFs track indices / markets, and offer a diversified access into equities and fixed income but ultimately, investors are still the ones in the driving seat making investment decisions. . Nevertheless, the growing variety of products – from thematic ETFs to smart beta and digital assets – is increasingly enabling investors to take targeted positions.

ETF flows in 2025 could reach a record level despite geopolitical uncertainties. And even innovations such as digital asset ETFs or actively managed ETFs increasingly finding their way into the product landscape. New types of ETFs are emerging. New types of investors are being added. In addition, the role of portfolio model portfolios is becoming more important, especially for private investors who are looking for a complete solution for their specific requirements. The ETF world is becoming more colorful, broader – and more demanding. For providers, flexibility and innovation are key.