ETF inflows: Heading for a record high?

Talking Heads with Daniel Dornel

Daniel Morris: Hello, and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis on the topics that really matter to investors. In this episode, we’ll be discussing the latest developments in ETF (exchange-traded fund) flows. I’m Daniel Morris, Chief Market Strategist, and I’m joined by Daniel Dornel, Head of ETF Research.

Welcome, Daniel, and thanks for joining me.

Daniel Dornel: Hi, Daniel. Thank you for the invitation.

DM: Well, it’s been an interesting quarter – there’s always something going on in the world and affecting markets. The good news is, for the most part, markets [are] going up despite all these worries.

I’m interested to hear from you, Daniel, how the worries have been manifested in ETF outflows. Have you seen redemptions or have there been inflows despite all the concerns?

DD: When we last spoke, we highlighted that Q1 was the strongest quarter on record for UCITS ETF, and Q2 has been even more impressive, with just under €115 billion [of] inflows.

June was a particular milestone, with total assets under management in UCITS ETF, surpassing the €3 trillion mark for the first time. In terms of flows, they were dominated by equities with around 70%, mainly into global exposures, which dominated with over €50 billion inflows during the period.

This represents an acceleration on top of the strong Q1 figures, where global exposures were already the biggest component. All signs point to 2026 shaping up as a record-setting year for global equity exposures in the ETF space. We’ve already [had] €91 billion year to date – not far off the €103 billion for the full-year 2025.

DM: Let’s take a look more closely at the US. When I mentioned concerns last year, a lot of it was around tariffs, worries about stagflation. This year we had the Iran war and the spike in energy prices, but at the same time, a lot of positive dynamics. Clearly, the investment that’s going into AI and that’s spilling over into other parts of the economy.

We seem to have a better labour market than we thought we were going to have. What are the US flow dynamics like?

DD: After a very quiet end of 2025 and start of the year for US equities, the momentum really took off in Q2. Month after month, we saw an increase in flows to finish the quarter at over €25 billion euros.

Overall, this represents the second-largest quarter on record for US equities, only behind the extraordinary €55 billion we observed in Q4 2024 on the back of the US election.

Something else changed from Q1 to Q2 in terms of flows into US equity product – the type of product that gathered the assets. Most Q2 flows went into core index strategies compared to Q1, where equal-weighted approaches were favoured by investors.

DM: Okay. Let’s look beyond the US. Have you seen changes in the pattern of flow for Japan or Europe?

DD: To continue with the positive dynamics, we have the Japanese equity flows. They remain strong, with just under €3 billion of flows, and this is continuing the interesting trend for this exposure, [which] started last year. On the flip side, the story has been different for Europe and in emerging market[s].

On European equities, we observed over €5 billion [of] outflows over the period with three negative consecutive months, which is a first since September 2023 for the UCITS market. Emerging market inflows have slowed down quite sharply. In Q2, they only attracted about €3 billion – an important contrast compared to the €14 billion we observed during the first three months of the year.

DM: That’s an interesting contrast in the flows between Japan and Europe. I think the assumption for a lot of investors – with the Iran war and the spike in energy prices – is that Europe was negatively affected, but Japan as well is a big energy importer, so [it’s] interesting that you still had positive inflows into Japan despite the concerns.

Well, let’s take a look at what’s happened on the fixed income side. How have flows been there?

DD: The dynamic on fixed income has been very impressive this quarter, with flows reaching the €30 billion threshold for the first time in UCITS bond ETFs. Flows were led by government bond exposures attracting over €11 billion, and this was spread across global euro-denominated and US Treasuries.

Investment-grade corporate bonds are following with just under €6 billion, representing an important acceleration compared to the last quarter. And in this space, investors clearly favoured euro-denominated exposures.

Over the last quarters, we have been talking a lot about ultra-short duration product[s]. They remained in positive territory in Q2, with €3.9 billion inflows, but that’s the weakest quarterly figure for the sub-asset class since 2023. And the final word on high-yield bonds. They managed to gather over €3 billion again, largely driven by euro-denominated product.

DM: Any final points of interest you’d like to highlight, Daniel?

DD: Yes, a couple of points I’d like to mention. The first is about sector and thematic exposure. We saw interesting flows in Q2 for these sub-asset classes, and investors kept their focus mainly on technology-related themes with important investment in semiconductors, AI (artificial intelligence) and other disruptive tech exposures.

We also had very interesting flows into infrastructure products for the second quarter in a row. The flows went not only into a traditional infrastructure product, but also new categories of products such as smart grid and electrification, which is a recent trend observed in the ETF market.

And the final word on active ETF[s] – they continued their upward trajectory. In Q2, they attracted just under €14 billion, accounting for a little more than 12% of the total flows over the last three months. This is the highest share we have ever recorded for the active ETF segment.

DM: Thank you very much, Daniel. Some of the key points that you shared with us: Overall, the strongest quarter ever for flows to equity ETFs, notably to the US and to Japan, though actually negative for Europe. At the same time, also very strong flows to fixed-income ETFs, which suggests investors are looking for a balance between equity and fixed income risk, and also maybe tells us investors are starting to take some of the money they’ve had in cash and putting it to work in investments in other asset classes.

Finally, on the thematic front, IT, not surprisingly, still very much a popular choice for investors, though it’ll be interesting to see with the recent wobble in the market if investors buy the dip, as we say, or change their mood.

Well, Daniel, thank you very much for joining me.

DD: Thank you very much for having me.

DM: That’s it for this week’s episode of Talking Heads. If you’d like more information about our capabilities in ETFs, please reach out to your asset management contact or check out Viewpoint, our website for investment insights at viewpoint.bnpparibas-am.com.

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You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and Daniel Dornel, Head of ETF Research.

Please do join me next week. Until then, take care.