3 min read
by John Downward
European ETFs give a large diversification in mutual funds and with a bit of the fee. If you buy one security as a foreign investor you will have exposure to a lot of firms in the EU. Why Europe is interesting for investors? First of all, some of the biggest companies are located in Europe. So, it is a great opportunity for foreign investors to invest in EU ETFs. The European Union factors about 20% of the world GDP, therefore it looks like one of the most valuable investment targets in the world.
Benefits of Investing in European ETFs
Europe is one of the best-shielded business areas in the globe. To be honest, there are still some risks after the crisis in 2009. The companies in Eastern Europe have better growth potential than Western Europe. Anyway, by having EU ETFs in your investment portfolio is a great choice and I’ll try to explain why that is.
First of all, in Europe are some of the most successful companies. For example, a lot of US investors are very interested in them. Moreover, Europe is consists of several areas. That makes European ETFs very good for diversifying a stock portfolio without the risk which developing markets may give. The added quality is that the EU is honestly low-risk. Just compare it with Asia, for example.
Many investors are now attempting to enter the European Union market through mergers and acquisitions. Also, by investing in its main businesses. The EU is, in fact, welcoming foreign investment.
Risks of investing
Of course, there are some risks involved.
The main risk is that the members of the EU are very connected and dependent on each other. At first glance, nothing is bad with that but if a crisis occurs it will spillover among them, and business in the union may fall down like a house of cards. As I mentioned above, Wester Europe economies have slower growth and they may seem less attractive for investing. Especially for investors who want more risky investments.
Where to find: Top European ETFs
MSCI European ETF (NYSE: VGK)
Vanguard is available in Europe. Its European funds are based in Ireland. Vanguard allows non-residents to buy their ETFs/funds through a broker. So you can not directly do it through them. Vanguard’s ETF is a good option but it involves currency exchange. You can simply open an account with any broker with access to the NYSE ARCA. That is the stock exchange where Vanguard ETFs trade. The rest is simple, buy it just like with any other international stock.
A lot of investors favor “tracker” funds. They allow you low-cost investments. But not all tracker funds are low cost. Moreover, the fund charge is not all you pay, you will have to pay the broker or fund platform too. The good news is that as your portfolio grows the broker will charge you less on a sliding scale.
SPDR DJ Euro STOXX 50 ETF (NYSE: FEZ)
FEZ includes the 50 biggest EU companies but the large-caps from countries that don’t use the euro, including the UK, Switzerland, and Sweden, are not included. But, FEZ’s portfolio includes companies from France and Germany. As a difference from other EU funds, it does not hedge euro exposure.
European ETFs provide the most comfortable approach to get exposure to European markets and the easiest access to invest in Europe. In comparison to buying foreign stocks directly, it is for sure.
Further, European ETFs are an excellent method to diversify your stock portfolio with low-risk investments. To be honest, I have to say that European ETFs will not suit every investor. Risk seeking investors wouldn’t like them, or for younger investors, European markets are not volatile enough. Yes, there is pretty much a lack of excitement.