Beyond ForexJan 27, 20265 Min

Cross-Border ETF Flows: What the Smart Money Is Doing

Disclaimer: This article is provided for informational and educational purposes only and does not constitute investment advice, a personal recommendation, or an offer or solicitation to buy or sell any financial instruments. Investments involve risks, including the possible loss of capital. Past performance and historical data are not reliable indicators of future results.

The year 2025 is a defining time for ETF (Exchange Traded Fund) flows, as large-scale institutional investment is flowing rapidly into cross-border investments. This reflects a growing interest in global diversification among market participants.

As reported by ETFGI in their September 2025 report, global ETF assets achieved a record level of $18.81 trillion in September. This was primarily due to improved liquidity and innovation in active and thematic product offerings.

Data referenced reflects industry-wide trends and should not be interpreted as a forecast or guarantee of future market developments.

The 2026 ETF Landscape: Why This Year Is Different

Institutional investors are increasingly combining cross-border ETFs with actively managed strategies in 2025, reflecting efforts to respond to rapidly evolving global market conditions. Here are the key trends that are shaping this shift to ETFs:

Active Management Reshapes the Industry

Active ETFs have seen a total of $354 billion in fund flows in 2025. This represents that the rate of growth is greater than 5 times that of Passive ETFs. Active Equity ETFs, on the other hand, saw a total of $20.3 billion in net inflows for October, and Active Fixed-Income ETFs saw $16.9 billion in Net Inflows.

These figures indicate increased interest in active management structures within the ETF framework. Of institutional investors surveyed by Natixis, 46% intend to increase their allocation to Active ETFs as part of broader portfolio considerations, particularly in uncertain market conditions.

Survey results reflect stated intentions and may not translate into actual investment behaviour or outcomes.

Cross-border Regulatory Connectivity Unlocks Unprecedented Flows

There has been a net inflow into the European market of $333.22 billion (the largest YTD inflows ever recorded), surpassing last year's record of $207.79 billion for 2024. Cross-border regulation, mutual recognition agreements, and expanding ETF domicile frameworks have reduced friction and allowed financial institutions to gain access to new markets.

Regulatory innovation in the Asia Pacific region has generated over $200 billion in strategic diversification flows from investors. They are now capitalizing on the new opportunities that were made available to them.

Regulatory changes may evolve and do not remove market, regulatory, or operational risks associated with cross-border investing.

Why These Flows Reveal Smart Money Thinking

Asset allocation trends reflect how investors are allocating their capital. Cross-border investing illustrates how portfolios may be diversified to gain international exposure. When investing across borders, investors may face risks including:

• Currency exchange issues
• Regulatory and legal differences
• Liquidity constraints in certain markets

Investors typically assess potential risks and rewards in light of their individual circumstances and objectives.

What’s Behind Smart Money Cross-Border Moves?

Institutional investors commonly use several structured approaches when allocating capital internationally, including:

• Targeting regulatory connectivity
• Investing in thematic innovation
• Investing beyond a “home market” bias

These new investment strategies will build on the current movement of active managers migrating to cross-border regulations, which have dramatically impacted the 2025 ETF market.

These approaches describe observed market behaviour and should not be interpreted as recommendations.

Regulatory Connectivity

• The expansion of mutual recognition agreements across Europe and the expansion of UCITS frameworks in the Asia-Pacific region are allowing institutional capital to be deployed in markets across the globe with greater ease than before.
• This connectivity has allowed institutional investors to now access markets that were previously inaccessible (i.e., these were previously closed to institutional investors).
• It unlocks closed opportunities to liquid and tradable investments that institutional investors can deploy strategically.

Market accessibility does not eliminate investment risk and may be subject to future regulatory changes.

Thematic Innovation Captures Smart Money Attention

• There is a new trend of crypto-linked investments, green energy exchange-traded funds (ETFs), and option-based investments. This trend is attracting large institutional investments to generate excess returns (alpha), beyond simply investing in traditional index-type investments.
• Thematic exposures on top of a passive core investment strategy allow institutions to capture a "growth" theme on top of their existing fixed income and equity active management strategies they have already invested in.
• Thematic investments may be subject to concentration risk and heightened market sensitivity.

Global Shift Extends Towards Institutions

• In 2025, Australian investors were able to increase their international ETF allocation by an astonishing 368%. This mirrors the same institutional investment trend that has led to the largest ever flow of money into European and Asia-Pacific ETFs.
• This shift reflects portfolio diversification considerations and reassessment of domestic market concentration. At the same time, reduce home country exposure in a region where sophisticated investors are recognizing the potential for it to be a portfolio risk (vulnerability).

ETF Inflows and Outflows: Institutional Pulse

The inflows and outflows of 2025 show us how the smart money is repositioning capital across regions. These examples provide insight into the cross-border approaches institutional investors are using to leverage existing connections between regulators to build upon thematic approaches to identify opportunities for growth, while at the same time attempting to mitigate risk.

All figures are historical and illustrative only. Past flows do not predict future performance.

Key Takeaways:

• The largest markets influenced by the cross-border ETF flows of 2025 are led by the United States ($1.4T), where inflows have been fueled by a combination of tech and policy trends.
• Second is the European market, which has seen an additional $333B in active and ESG UCITS-based strategies.
• Third is the Asia-Pacific region, which has grown at the fastest rate of all three (projected to reach $300-$350B annually), with growth resulting from ETF Connect in both Hong Kong and China.
• Increased investment in Japan, Australia, and India: all are being used to attract global investors who are seeking to utilize these regions' diversified or thematic investment opportunities.

Regional trends may change based on economic, political, and regulatory developments.

Smart Money ETF Strategies in 2026

Institutional investment approaches continue to evolve in response to market and regulatory changes. The most critical strategies of institutional investors this year will be:

• Global Diversification: Institutional investors have begun to move out of home bias. They are now using global ETFs for both risk management and finding new investment opportunities.
• Choosing Low-Cost Ratio ETFs: Institutional investors are now focused on the lowest possible expense ratios. ETFs that charge under 0.01% represent a huge percentage of new ETF flows.
• Rotating into Sectors and Themes: Institutional fund flows follow performance patterns. Currently, banks, technology, and artificial intelligence are leading in terms of returns, while climate-themed ETFs are attracting pools of sustainable capital.
• Using Active Management Overlay: Many institutions are pairing an unmanaged, passively traded broad market ETF with an actively traded thematic or hedge product to make targeted adjustments to their portfolios as quickly as necessary.
• Allocating Based Upon Risk-Adjusted Asset Selection: Institutional investors are extremely sensitive to changes in regulations, currency risk, and liquidity issues. Cross-border flow movements are being analysed to determine how local macroeconomic conditions and policy changes are impacting those investments.

These strategies reflect institutional behaviour and are not suitable for all investors.

What’s Ahead: Insights for Investors

There is institutional reallocation of smart money, which has been moving $50+ billion a year to date from mutual funds to ETFs due to the greater liquidity, diversity, and lower cost (with fees under 0.1%).

• Market participants may continue to observe structural shifts in ETF usage driven by liquidity, cost efficiency, and regulatory developments in 2025 and 2026 based on the record-breaking flow into ETFs and the historic asset growth of that model.
• ETF smart money is being positioned to be agile. The blending of cost-efficient low-cost vehicles with active management and increasing exposure to emerging markets.
• This exposure is supported by cross-border regulations, which provide smart money with the ability to create and implement smart money ETF strategies in a rapidly changing world.
• The global ETF inflows in 2025 represent a time when the investment winners and losers are dictated by innovation, sectoral dynamism, and the exchanges across continents.
• Adaptive strategy and vigilance will continue to be required. As smart money sees the risk/reward ratio of various investments change, they will use ETF flows as a means to measure these changes.

Conclusion

The 2025 cross-border flow of ETFs signifies more than just an institutional or individual investment move from one asset class to another. It signifies a major paradigm shift for smart money institutions and their investor clients as they allocate, diversify, and strategically manage assets across global markets. Understanding ETF inflows and outflows may provide context on market trends, though such information should be considered alongside broader financial analysis and individual circumstances.

This article is not intended as investment advice. Investors should conduct their own research and, where appropriate, seek independent professional advice before making investment decisions.