Emerging market equity exchange-traded funds have drawn strong investor inflows since the beginning of the year, supported by more attractive valuations and solid growth potential. This trend has persisted even as global markets remain unsettled by geopolitical risks and weakness in bond markets.
Data from Refinitiv Lipper shows that emerging market equity ETFs have absorbed around $14 billion in net inflows so far this year — the largest among all ETF categories and on track for a new monthly record. The previous peak stood at $10.9 billion in March 2021. By contrast, U.S. equity ETFs have posted net outflows of roughly $2.1 billion year to date.
According to Alan Kosan, head of strategy at Segal Marco Advisors, investor interest has been fueled by strong emerging market equity performance in 2025, which has outpaced both U.S. and other developed markets. He added that a weaker U.S. dollar and a search for growth beyond richly valued developed markets have further boosted demand.
Kosan noted that these dynamics are likely to attract not only new investors to the asset class, but also those reallocating capital away from other equity strategies.
Rotation away from U.S. assets gathers pace
Inflows into emerging market ETFs have also been supported by a renewed “Sell America” trade, as investors reduce exposure to high-priced U.S. assets and rotate into regions offering better growth visibility. Lipper data highlights the shift, showing $3.7 billion in outflows from U.S.-focused equity ETFs this week alone, while emerging market equity ETFs pulled in $2.7 billion.
James Fletcher, chief investment officer at Ethos Investment Management, pointed to several structural tailwinds behind the move. These include strong demand for artificial intelligence-related technologies from South Korean and Taiwanese firms, rising commodity prices, and renewed interest in Chinese equities.
Fletcher said emerging market outperformance appears more sustainable than a short-term tactical trade, citing long-term growth drivers in regions such as Southeast Asia and India, alongside improving earnings outlooks across emerging markets.
Valuations favor emerging markets
Performance data further supports the trend. The MSCI Emerging Markets Index has gained 5.4% so far this year, compared with a 0.9% rise in the MSCI World Index and a 0.4% increase in the MSCI United States Index.
Valuations also remain compelling. The MSCI Emerging Markets Index is trading at a forward 12-month price-to-earnings ratio of 13.5, significantly below the MSCI World’s 19.9 and the MSCI United States Index’s 22.3, reinforcing the relative value appeal of emerging market equities.
