Investment managers sold European assets at nearly the fastest pace in a year, taking profits in defense companies and turning their focus back to the U.S., according to separate reports from Goldman Sachs and Barclays.

In an analysis of trading up to June 20, a Goldman prime brokerage team found that the previous week saw the second largest weekly short selling in European equities over the past 12 months, driven by hedge funds taking fresh short positions in individual equities and macro products.

Short selling is when an investor first sells an asset in the expectation of buying it back at a cheaper price. Macro products refer to assets that are influenced by broader macroeconomic conditions and trends, such as currencies, bonds, equity indices and commodities.

The switch away from Europe comes after the continent markedly outperformed Wall Street in recent months. Germany's 40-member DAX index DAX, for example, is up nearly 19% so far in 2025, as investors warmed to signs of more government spending, while the 30-member Dow Jones Industrial Average DJIA has gained just 1.4%.

A star performing sector for Europe of late has been defense, boosted by proposals of increased military spending by the region's NATO members. For example, shares of Rheinmetall (XE:RHM), the German armored vehicle-maker, have surged 248% over the last 12 months.

However, the U.S. bank observes that European defense stocks have been notably net sold ahead of the current NATO meeting, and indeed hedge funds have been net selling the overall German market since April.

Still, funds have continued to be net buyers of the continent's financial services and bank stocks, alongside telecoms, the latter in the belief there will be consolidation in the sector.

The Euro Stoxx banks index XX:SX7E is up 37% this year.

Goldman also says that funds have been going long European companies that are more exposed to the U.S. economy, with continued net buying of luxury goods groups, for example.

That shift of focus back to the U.S. - predicated partly on hopes recent fears of a U.S. recession will not now be realized - has also been seen by Emmanuel Cau, analyst at Barclays.

In conversation with investors, Cau says their cautious mood prevailed and that 'Buy America' was the new mantra as Europe's outperformance slows.

"Europe's year-to- date outperformance is starting to wane, withthe rising euro seen as a headwind for earnings, and lingering tariffs uncertainty capping the upside for exporters," said Cau in a note published at the start of the week.

"Big Tech is back in vogue and investors see U.S. equities as likely to be more resilient than ROW [rest of the world] into summer, given the geopolitical uncertainty and the benefits of a weaker dollar," he added.

The euro $(EURUSD.FOREX)$ has gained 12% vs. the U.S. dollar this year.