The European Union faces a growing challenge as more of its investment capital flows into U.S. markets, driven by the rapid expansion of the technology sector. With nearly half of European funds’ assets now allocated to American companies, policymakers are exploring ways to redirect capital back into the continent’s economy.
U.S. Market Dominance in European Portfolios
Over the past decade, the share of U.S. companies in European investment funds has doubled, reaching 44%, largely due to the soaring performance of American technology stocks. Meanwhile, European firms’ representation in equity funds under the Ucits framework has declined to 34% from 54% in 2013, as reported by El Economista.
This shift is also influenced by the rise of passive investment strategies, which have made U.S. stocks more accessible to investors. Exchange-traded funds (ETFs) now account for 14% of total European fund assets, attracting 44% of net inflows in 2024. In contrast, active funds saw outflows of €51 billion, reflecting a shift in investment preferences.
EU’s Response to Redirect Capital
In response to these trends, European policymakers are pushing for measures to encourage domestic investment. Last week, EU Financial Services Commissioner María Luis Alburquerque and Spanish Economy Minister Carlos Cuerpo unveiled a plan to introduce a financial product label offering tax advantages to certain European investments. This initiative, backed by key EU nations, aims to incentivize individuals to invest their savings in regional markets rather than in overseas assets.
The European Commission is also developing a broader proposal under the Savings and Investments Union (SIA) framework, which seeks to unlock the €14 trillion held in household deposits across the bloc. However, legislative hurdles mean significant changes could take time to materialize.
Shifting Investment Sentiment
Recent geopolitical and economic factors are prompting some investors to reconsider their heavy U.S. exposure. Rising tariffs under President Donald Trump’s administration and uncertainties surrounding the American economy have made European assets more appealing. A Bank of America survey of fund managers indicates an increasing overweight stance on Europe—the second-largest shift in allocation this century.
As the EU continues to explore ways to boost investment in its own markets, the debate over capital allocation highlights the broader challenge of balancing globalization with economic sovereignty.
