Latest ETF Flows Show the ‘TACO' Trade in Action
Recent ETF flows suggest the great U.S.-to-Europe rotation is already losing momentum, perhaps a sign of the TACO, or "Trump always chickens out," trade in action.
Indeed, European ETF investors poured $3.3 billion into U.S. equities in the four weeks to June 6, surpassing European equivalents, which pulled in $2.2 billion, according to figures from Morningstar Direct.
As the below chart illustrates, the U.S. exceptionalism trade peaked in late 2024 before a spectacular turnaround took hold in the early months of 2025. But recent flow momentum has swung back in favor of U.S. stocks.
Rolling Three-month inflows into Europe-domiciled ETFs by region—Source: Morningstar Direct, ETF Stream
The data swim against the prevailing narrative that a great rotation out of U.S. stocks is underway, with Europe one of the principal beneficiaries.
Six months ago, such a turnaround was all but inconceivable. Indeed, almost all ETF issuers called for a continuation of U.S. exceptionalism in their 2025 outlooks, but the reversal has been spectacular this year as President Donald Trump's chaotic tariff announcements and profligate spending plans called economic growth into question and shined a spotlight on the deteriorating U.S. fiscal position.
However, the latest positioning suggests investors are yet to call time on U.S. exceptionalism altogether, and the recent shift could be a sign of the TACO trade in action—an assumption that Trump always chickens out of his initial policy stance.
"Relaxing signals in the trade dispute between China and the USA impacted the ETF market in May. Investors turned more towards the USA again," said Stefan Kuhn, head of ETF distribution Europe at Fidelity International.
And looking to Europe, after a stellar run year to date, 'Investors are asking themselves how much upside potential European stocks still have,' he said.
This article was originally published at etf.com sister publication ETF Stream.Permalink | © Copyright 2025 etf.com. All rights reserved
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