Europe is home to some of the biggest and best-known companies in the world, including Nestlé S.A. (NESN), Volkswagen A.G. (VOW3), and SAP S.E. (SAP). Investors looking for broad exposure to the European market may consider buying exchange-traded funds (ETFs). Europe-focused ETFs provide diverse exposure to companies in this market, helping to mitigate the risk often associated with investing in individual stocks.
Europe’s recovery from the economic shock triggered by the COVID-19 pandemic began to slow in the final few months of 2021 amid the spread of variants of the coronavirus. While the eurozone reached pre-pandemic levels of output, the bloc is now facing new challenges with the outbreak of war in Ukraine. The war is disrupting already-strained supply chains, which is causing costs to skyrocket, especially energy costs.
The war has prompted the United Nations Conference on Trade and Development (UNCTAD) to lower its forecasts for economic growth in 2022. It lowered its forecast for global growth to 2.6% from 3.6%. A big reason for the downgrade is due to lower growth expectations for the eurozone, which UNCTAD now expects to grow 1.7% this year, half of what was previously expected.
- The European stock market has underperformed the U.S. equities market in the past year.
- The Europe exchange-traded funds (ETFs) with the best one-year trailing total returns are DBEU, EUSC, and TUR.
- The top holdings of these ETFs are Nestlé S.A., Enagas S.A., and Eregli Demir Ve Celik Fabrikalari T.A.S., respectively.
There are 38 Europe ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as ETFs with less than $50 million in assets under management (AUM). European equities, as measured by the MSCI Europe Index, have underperformed the U.S. stock market over the past 12 months, with a total return of -15.1% compared with the S&P 500’s total return of -4.4%, as of May 9, 2022. The best-performing Europe ETF, based on performance over the past year, is the Xtrackers MSCI Europe Hedged Equity ETF (DBEU).
We examine the three best Europe ETFs below, based on performance over the past year. All numbers below are as of May 9, 2022.
- Performance over one year: -2.9%
- Expense ratio: 0.46%
- Annual dividend yield: 2.49%
- Three-month average daily volume: 118,426
- AUM: $510.5 million
- Inception date: Oct. 1, 2013
- Issuer: DWS
DBEU seeks to track the MSCI Europe U.S. Dollar Hedged Index. The benchmark is designed to provide a close approximation of returns that can be achieved by hedging the currency exposures of its parent index, the MSCI Europe Index, to the U.S. dollar. The ETF provides broad exposure to the European equity market but is hedged to the U.S. dollar. That means that returns will solely be based on the performance of the equities rather than equity performance plus currency fluctuations. The sectors receiving the largest allocations within the fund are healthcare, financials, and industrials. Great Britain, France, and Switzerland are the fund's largest geographical exposures. DBEU employs a blended strategy of investing in a mix of value and growth stocks of primarily large cap companies. Its top three holdings are Nestlé S.A. (NESN:SWX), a Switzerland-based multinational packaged food company; dividend right certificates of Roche Holding Ltd. (ROG:SWX), a Switzerland-based developer and manufacturer of pharmaceutical and diagnostics products; and ASML Holding NV (ASML:AMS), a Netherlands-based developer and producer of semiconductor manufacturing equipment.
- Performance over one year: -3.9%
- Expense ratio: 0.58%
- Annual dividend yield: 2.47%
- Three-month average daily volume: 5,732
- AUM: $61.9 million
- Inception date: March 4, 2015
- Issuer: WisdomTree
EUSC aims to track the WisdomTree Europe Hedged SmallCap Equity Index, which is designed to gauge the currency-hedged performance of small cap European equities. The ETF provides U.S. dollar-hedged exposure to European equities that pay dividends. The currency-hedging feature means it will have higher returns than an equivalent unhedged investment when the euro weakens relative to the U.S. dollar. The sectors receiving the largest allocations within the fund are industrials, financials, and utilities. The top three countries with the largest exposures in the fund are Italy, France, and Germany. EUSC is primarily focused on small cap value stocks. Its top three holdings are Enagas S.A. (ENG:MCE), a Spain-based natural gas storage and transportation company; Proximus S.A. (PROX:BRU), a Belgium-based communication services company; and Italgas SpA (IG:MIL), an Italy-based gas distribution services company.
- Performance over one year: -5.3%
- Expense ratio: 0.57%
- Annual dividend yield: 3.45%
- Three-month average daily volume: 355,850
- AUM: $273.7 million
- Inception date: March 26, 2008
- Issuer: BlackRock Financial Management
TUR is designed to track the MSCI Turkey IMI 25/50 Index, a broad-based index composed of Turkish equities. The ETF provides broad exposure to companies based in Turkey. It is one of the only ETF options available for gaining exposure to this emerging market economy. Industrials, financials, and materials are the sectors receiving the largest allocations within the fund. TUR follows a blended strategy of investing in a mix of growth and value stocks of primarily large cap companies. Its top three holdings are Eregli Demir Ve Celik Fabrikalari T.A.S. (EREGL.E:IST), a manufacturer of iron and steel products; BIM Birlesik Magazalar A.S. (BIMAS.E: IST), an operator of food and basic consumer goods retail stores; and Turkiye Petrol Rafinerileri A.S. (TUPRS.E:IST), a producer of gasoline, diesel fuel, and other petroleum products.
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