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Investing in Europe: What ETFs are out there?

ETF Watch - May 04, 2017

In one of the most interesting presidential races in many years 6 months, France heads to the polls this weekend, with reformist Emmanuel Macron up against modern day Joan of Arc, Marine Le Pen. With Macron the frontrunner in the election, European share markets are somewhat in a frenzy, with his pro business agenda expected to drive investment in a Europe which is still shocked by Brexit last year and has underperformed somewhat since the GFC. How it all plays out is anyone’s guess, but it’s a good opportunity to have a look at the ETFs available to investors interested in Europe.

Broad based offerings – IEU and VEQ

As the two largest ETF issues in Australia, it’s no surprise that iShares and Vanguard offer ETFs to invest in the broad Europe space. The iShares Europe ETF (IEU) dates back to 2007, with a market capitalisation of $555m. The Vanguard FTSE Europe Shares ETF (VEQ) was only launched in 2015, and has a market cap of $69m, but is the lowest cost Europe offering, with management costs of 0.35%pa compared to 0.60% for IEU.

The table below outlines the key attributes of each fund.

Name iShares Europe ETF Vanguard FTSE Europe Shares ETF
Ticker IEU VEQ
Management Cost 0.60% pa 0.35% pa
Market Cap $555m $69m
Inception Date Oct 2007 Dec 2015
Benchmark E&P Europe 350 FTSE Developed Europe All Cap Index
Domiciled USA Australia

Investors should be aware that both indexes that IEU and VEQ track include the United Kindom as their key country makeup, with around 28% being held in UK companies for both indexes. Both indexes hold around 15% in French shares. One of the key differences between the two funds is the country of domicilation, with the Vanguard offering being Australian domiciled and iShares internationally domiciled. We wrote about what thate means in an earlier post.

Specialised offerings – UBE, ESTX and HEUR

Aside from the two broad based offerings above, there’s three more specialised offerings:

ETFS EURO STOXX 50 ETF (ESTX)

The STOXX 50 index follows the 50 largest stocks from 12 eurozone countries, so is a ‘super large cap’ offering. Its key point of difference apart from it only investing in 50 stocks is it excludes the UK, so is a more ‘pure’ euro offering. Management costs are equivalent to Vanguard’s FTSE Europe ETF at 0.35% pa.

We wrote about ESTX when it was first launched last year. 

Betashares Wisdomtree Europe ETF - currency hedged (HEUR)

This is the only Europe offering which offers investors currency hedging, taking the movement of the Australian dollar against European currencies out of the equation. The other key difference is the Smart Beta approach, with the key differentiator being the Wisdomtree index which this fund follows investing in European companies whose earnings are primarily generated outside of Europe, and pay dividends. HEUR also excludes the UK from its makeup, with 25% of its exposure in French companies. Management costs are 0.51% pa.

We wrote about HEUR when it was first launched last year.

UBS IQ MSCI Europe Ethical ETF (UBE)

UBS’ range of ethical ETFs includes their European focused offering, UBE. The index excludes tobacco and controversial weapons. As we wrote about when we looked at Ethical ETFs, the ethical screener is likely to exclude only a minority of companies focusing on these discreet industries, as a result the portfolio makeup is likely to be similar to both IEU and VEQ. 27% of the portfolio includes the UK, with 16% French exposure. Management costs are 0.40% pa. 

There’s our wrapup of the ETFs available for those seeking exposure to Europe and possible post French election sharemarket rally. Of course if pure currency exposure is what you’re looking for, Betashares offer their Euro ETF (EEU). Tell us below in the comments where you think Europe is heading?

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