ETF Strategies

Key Takeaways

• European equity ETFs recorded nearly $10 billion in January 2026, the second-strongest month since records began
• Equity ETFs were 88 percent above their twelve-month average, bond ETFs 78 percent above (as of January 2026)
• €10.5 billion flowed into European defense ETFs since March 2025
• Globally oriented equity ETFs such as the MSCI World exhibit high single-stock concentrations in some cases, despite nominally broad diversification
• For ETF savings plans, 50 percent of ratings go to costs, 25 percent to free savings plans, and 20 percent to product range
• Broadly diversified equity ETFs remained the sales leaders in 2025, despite strong performance by specialized sector ETFs

Shift in ETF Market: Europe Displaces US Dominance

The ETF market shows a fundamental change in direction in the first quarter of 2026. After years of US dominance, investors are withdrawing billions from American markets and shifting capital to Europe. According to market data, European equity ETFs recorded nearly $10 billion in January 2026, the second-strongest month since records began.

The figures illustrate the extent of the reallocation: equity ETFs in January 2026 were overall 88 percent above their twelve-month average, bond ETFs 78 percent above. This shift reflects a changed market environment in which geopolitical tensions and interest rate uncertainties are losing weight.

Structural Growth as Strategic Focus

While previous years were marked by short-term disruptions, investor focus in 2026 is increasingly directed toward structural growth themes and long-term developments. A clear example: European defense ETFs attracted inflows of €10.5 billion since March 2025.

Nevertheless, broadly diversified equity ETFs continue to dominate sales statistics. Despite sometimes impressive performance by specialized sector ETFs in 2025, investors predominantly prefer diversified approaches. This strategy reduces individual risks and provides access to various sectors and regions.

Diversification: Between Promise and Reality

The apparent breadth of many ETFs proves deceptive upon closer examination. According to Flossbach von Storch, globally oriented equity ETFs such as the MSCI World exhibit high single-stock concentrations in some cases. Market capitalization weighting means that a few large companies account for a disproportionate share of index weight.

The nominally large number of holdings does not automatically ensure even risk distribution due to this weighting method. Those seeking true diversification must critically examine their ETF portfolio composition and, if necessary, adjust course with targeted additions.

Risk Profile Determines Strategy Choice

The right ETF strategy depends significantly on personal risk profile. Investors with lower risk tolerance opt for more defensive ETF combinations, for example with higher bond allocation. Risk-tolerant investors focus on equity ETFs with higher return potential, accepting greater volatility in return.

Aligning strategy with risk tolerance prevents emotional selling during periods of high market volatility. Those who know their risk profile can stick to their chosen strategy even in turbulent times.

Costs as Decisive Success Factor

When selecting ETF savings plans, costs play a central role. According to provider comparisons, 50 percent of overall ratings go to the cost criterion, 25 percent to the number of free ETF savings plans, and 20 percent to product range.

The lower the custody costs and fund internal fees, the more of the ETF performance remains with the investor. Even seemingly small cost differences add up to substantial amounts over years. Comparing different providers is especially worthwhile for long-term savings plans.

Broad Diversification with Small Investment Amounts

ETFs enable access to broadly diversified portfolios even with small amounts. While actively managed funds often require high minimum investments, many ETF savings plans start from €25 per month. This accessibility makes ETFs the preferred asset class for gradual wealth building.

The low internal fees of ETFs reinforce this advantage. While actively managed funds often charge management fees of 1.5 to 2 percent annually, ETF costs typically range from 0.1 to 0.5 percent.

Strategic Withdrawal Planning in Retirement

The decumulation phase also requires strategic planning. Instead of liquidating the portfolio in retirement all at once, financial experts recommend staged partial withdrawals over several years. This method makes it possible to use the tax allowance multiple times and thus optimize the tax burden.

The allowance in Germany currently amounts to €1,000 for single filers and €2,000 for married couples. Through smart planning of withdrawals, this tax allowance can be fully utilized year after year without paying additional taxes.