European ETFs and index funds are a compelling option for investors looking to diversfy their portfolios. These funds offer exposure to a basket of stocks from Europe, providing a convenient and cost-effective way to participate in the region’s economic growth.
In this guide, we will explore the best European ETFs, considering factors such as performance, fees, and the underlying benchmarks.
Understanding European ETFs
European index funds are investment vehicles that aim to replicate the performance of a specific index representing the European stock market. These indices typically include a diverse range of companies from various sectors and countries within the European continent. Investors can gain exposure to European equities without the need to pick individual stocks, making these funds suitable for both novice and experienced investors.
What to Consider When Choosing a European ETF
Underlying Benchmark: The choice of the underlying benchmark is crucial when evaluating European index funds. Popular indices include the STOXX Europe 600, Euro Stoxx 50, and FTSE Developed Europe Index. Each index has its own methodology and composition, impacting the fund’s performance and risk profile.
Performance: Examining historical performance is essential. While past performance is not indicative of future results, it provides valuable insights into how well the fund has tracked its benchmark. Consider both short-term and long-term performance metrics to gauge consistency.
Expense Ratios: Expense ratios represent the annual cost of managing the fund as a percentage of the assets under management (AUM). Lower expense ratios are generally favorable for investors, as they can have a significant impact on overall returns over time.
Tracking Error: Tracking error measures the deviation between the fund’s performance and that of its benchmark. A lower tracking error indicates that the fund closely mirrors the index. Investors should look for funds with consistently low tracking errors.
Dividend Yields: Some European index funds focus on companies with attractive dividend yields. For income-oriented investors, considering the fund’s dividend distribution history and yield can be crucial.
The Top 6 Best European ETFs in 2024
Most European index funds have at least 70% of their total assets invested in Europe. They mostly focus on the more developed markets, such as Germany, the UK, France, Netherlands, and Austria. The largest Europe ETF is the Vanguard FTSE Europe ETF VGK with about $14.68B in assets.
The following are our top recommendations for the best European ETFs for 2024. Of course, since everyone’s financial goals and risk tolerance are different, make sure it’s aligned with what you’re looking for.
iShares Core Euro Stoxx 50 UCITS ETF (CST50)
Tracking the Euro Stoxx 50 index, this ETF is known for its low expense ratio and excellent liquidity. The Euro Stoxx 50 includes 50 blue-chip stocks from Eurozone countries, making it a benchmark for the region.
SPDR Portfolio Europe ETF (SPEU)
This is one of the best European ETFs for anyone looking for long-term holds. It tracks the performance of STOXX Europe Total Market Index, which can be best described as the European equivalent to the S&P 500 Index. It offers access to publicly traded companies in Western European companies using a sampling strategy to pick the best performing companies within the fund.
Vanguard FTSE Developed Europe UCITS ETF (VEUD)
This fund replicates the FTSE Developed Europe Index, providing exposure to large and mid-cap stocks across 16 European countries. Vanguard is renowned for its low-cost investment products, making VEUD an attractive option for cost-conscious investors.
Vanguard FTSE Europe (VGK)
The VGK ETF tracks the performance of an index spanning the entire European market. All its assets are invested in stocks included on the FTSE Developed Europe All Cap Index. The holdings are weighted by marketcap, and include global giants like AstraZeneca and Nestle.
Xtrackers MSCI Europe UCITS ETF (DBEU):
Tracking the MSCI Europe Index, this DBEU ETF offers a broader scope by including stocks from both developed and emerging European markets. The fund’s diverse composition can enhance overall portfolio diversification. DBEU is hedged to the US Dollar, and its returns highly depend on the performance of the European equity market, and is not affected by currency fluctuations. Financials, healthcare, and industrials have the biggest allocations in this ETF.
Amundi STOXX Europe 600 UCITS ETF (EXSA):
Designed to replicate the STOXX Europe 600 Index, this Amundi ETF covers a wide array of sectors and is an excellent choice for investors seeking exposure to a broad range of European companies.
Bottom line
European ETFs present an appealing opportunity for investors looking to diversify their portfolios and tap into the region’s economic potential. By considering factors such as underlying benchmarks, performance, expense ratios, tracking error, and dividend yields, you can make better decisions when selecting the best European ETFs based on your investment objectives.
As with any investment, it is crucial to conduct thorough research and, if necessary, consult with financial professionals to align investment choices with individual financial goals and risk tolerance. Consider also checking out our list of the best investing apps.
