Funds offer a simple way to invest in European stocks.
With all the focus on U.S. elections in November and the admittedly dominant position of Wall Street in global finance, you might think that your only investment options right now include stocks headquartered in America. Don’t be fooled. Investors who overlook the importance of geographic diversification often miss out both on the growth opportunities overseas as well as the ability to smooth out volatility by relying on developed markets like Germany or the U.K. when the U.S stock market hits a snag. If you’re looking either to tap into outperformance or to provide additional stability to your holdings right now, these 10 Europe-focused exchange-traded funds may be worth a look.
Vanguard FTSE Europe ETF (ticker: VGK)
As is typical with Vanguard funds, VGK offers a cheap and liquid way to get diversified exposure to a broad investment theme. With almost $13 billion in assets under management and average trade volume of more than 4 million shares daily, this is clearly a popular ETF among those looking for exposure to Europe. With an annual expense ratio of just 0.08%, or $8 on every $10,000 invested, investors get that exposure in an incredibly affordable structure. Finally, with around 1,300 total holdings, this fund is incredibly diversified across company sizes and sectors in the region. Consumer goods company Unilever (UL) is among the fund’s top holdings. If you’re looking for an easy way to tap European stocks, VGK is it.
iShares Core MSCI Europe ETF (IEUR)
IEUR is, frankly, not all that different than the diversified European ETF offered by Vanguard. It has more than 1,000 total holdings, a low expense ratio of 0.09% and similar sector exposures to VGK — with health care and industrials leading the list at about a 15% allocation each, represented by names like Novartis (NVS) and Siemens (SIE.DE). The reason IEUR is also worth noting, however, is that iShares remains one of the largest fund families out there. As a result, some investment platforms offer this Europe ETF as a commission-free trade. If you can get European exposure without the extra fees, you probably should consider this fund over admittedly larger look-alike options.
SPDR EURO STOXX 50 ETF (FEZ)
One of the smaller European stock ETFs out there, FEZ is elegantly simple in that it’s benchmarked to an index of 50 large and representative stocks in the region, including Germany’s SAP (SAP), French drugmaker Sanofi (SNY) and U.K.-based chemicals giant Linde (LIN). Think of it as kind of the Dow Jones Industrial Average of Europe, with a small list of big stocks that collectively represent the entirety of the market. As with the Dow, investors should be aware that a big move in a single one of these components could really skew performance in a way other more diversified funds largely avoid. FEZ comes with an expense ratio of 0.29%.
JPMorgan BetaBuilders Europe ETF (BBEU)
For those unfamiliar with investing Greeks, the beta of an investment is a measure of its volatility in relation to the market. A high beta means that as the market goes up and down, that given asset or portfolio goes up and down even more in the same direction. So the name of JPMorgan’s BetaBuilders Europe fund is a nod to the fact that if you want to make a directional bet on Europe, BBEU is tailor-made for you. With a more targeted list of around 540 stocks, this fund is less interested in covering everything and more interested in simply giving you a clearly representative piece of the European market. With more than $4 billion in assets, many investors seem to think it does a fine job. The expense ratio is low at 0.09%.
iShares MSCI Eurozone ETF (EZU)
Another roughly $4 billion ETF is this iShares European stock ETF that defines this region by the euro currency zone rather than by geographic location. That means companies like Switzerland’s Nestle SA (NSRGY) or U.K. pharmaceuticals giant GlaxoSmithKline (GSK) are excluded, despite their substantial size and reach. Instead, the focus is on the largest eurozone economies of France and Germany, which collectively make up more than half of the portfolio. This includes companies such as L’Oreal (OR.PA) and Allianz SE (ALV.DE). If you’re more interested in the euro than Europe, this is an interesting alternative. EZU has a higher expense ratio of 0.49%.
iShares MSCI Germany ETF (EWG)
Getting even more specific, this European ETF is focused solely on the largest eurozone national economy with a very limited list of just more than 60 total holdings that are all headquartered in Germany. This doesn’t mean EWG is a singular play on this region, of course, as top holdings include multinational industrial giant Siemens and footwear and fashion icon Adidas (ADS.DE). That said, it’s undeniable that the portfolio is certainly more compartmentalized than other broad Europe ETFs on this list. With $2.5 billion in assets, it’s bigger than some of the funds out there that play the entire continent. Its expense ratio is also 0.49%.
iShares MSCI United Kingdom ETF (EWU)
Another large-country-specific Europe ETF is this U.K. fund from iShares. Part of the reason that EWU is popular right now is of course that this nation is among the largest national economies in Europe and indeed the world. However, it’s also increasingly in focus as the economic matters relating to the Brexit come into focus. Though the U.K. was never in the euro currency zone, its formal departure from the governmental structure of the European Union is no small matter. If you want exposure to just big British stocks like London-based bank HSBC Holdings (HSBC) or energy giant BP (BP), this is your way to do so. EWU has an expense ratio of 0.5%.
WisdomTree Europe Hedged Equity Fund (HEDJ)
WisdomTree’s hedged equity funds are effectively structured vehicles that look to allow traders to play a specific geographic region without the specific foreign-exchange risks that come in investing heavily in local currencies. To be clear, these currency-hedging strategies aren’t a guarantee that you won’t lose money — they are simply deployed in an attempt to neutralize the impact of the exchange rate from the euro back to U.S. dollars. The idea is to give investors a more faithful measure of the local stock environment instead of being as much a bet on currency markets as on European equity markets. HEDJ comes with a higher expense ratio of 0.58%.
First Trust STOXX European Select Dividend Index Fund (FDD)
The name says it all — this fund is designed to deliver dividends via European stocks, identifying top holdings through a number of qualitative screens that include dividend growth and payout history. Unlike many other Europe ETFs or dividend funds, however, the idea here is to focus on a small list of high-paying stocks to supercharge payouts. The result is a list of just 30 total positions, including Swiss bank UBS Group (UBSG.SW) and U.K. insurer and asset manager Standard Life Aberdeen (SLA.L). In fact, more than 40% of the entire portfolio is in the financial sector via stocks like these. Of course, with a healthy dividend yield of 7.2% at present, that focus is clearly resulting in big distributions. FDD has an expense ratio of 0.58%
WisdomTree Europe SmallCap Dividend Fund (DFE)
If you’re looking to go small in Europe, the reality is that there aren’t a lot of small-cap funds out there that command a lot in the way of either assets or trading volume. Among them, DFE is the best of the lot — even though it’s admittedly much smaller than the other picks on this list, with only about $300 million in total assets. It also doesn’t pay as much as the prior dividend fund. Its yield is only about 3%. However, with a basket of less than 300 small companies in Europe, if you really want to tap into the local economy, then this fund that focuses on modest industrial firms and community banks may be worth a look. DFE comes with an expense ratio of 0.58%.
10 European stock ETFs to buy now:
— Vanguard FTSE Europe ETF (VGK)
— iShares Core MSCI Europe ETF (IEUR)
— SPDR EURO STOXX 50 ETF (FEZ)
— JPMorgan BetaBuilders Europe ETF (BBEU)
— iShares MSCI Eurozone ETF (EZU)
— iShares MSCI Germany ETF (EWG)
— iShares MSCI United Kingdom ETF (EWU)
— WisdomTree Europe Hedged Equity Fund (HEDJ)
— First Trust STOXX European Select Dividend Index Fund (FDD)
— WisdomTree Europe SmallCap Dividend Fund (DFE)
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