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.
- The European stock market has slightly outperformed the U.S. equities market in the past year.
- The Europe exchange-traded funds (ETFs) with the best one-year trailing total returns are EWO, ERUS, and RSX.
- The top holdings of these ETFs are Erste Group Bank A.G., PJSC Gazprom, and sponsored American depositary receipts (ADRs) of Sberbank Russia PJSC, respectively.
There are 41 Europe ETFs that trade in the United States, 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 slightly outperformed the U.S. stock market over the past 12 months, with a total return of 41.9% compared with the S&P 500’s total return of 41.2%, as of Oct. 29, 2021.
The best-performing Europe ETF, based on performance over the past year, is the iShares MSCI Austria ETF (EWO).
Europe’s economy bounced back strongly in summer 2021 after being heavily impacted by the COVID-19 pandemic. In the third quarter (Q3) of 2021, eurozone gross domestic product (GDP) grew by an adjusted annualized rate of 9.1%, a faster pace than both the United States and China.
The three top Europe ETFs on our list focus primarily on Austria and Russia, the 27th and 11th largest global economies, respectively, as measured by GDP. Austria’s economy plunged 6.3% in 2020, while Russia’s economy was less hard hit, shrinking 3%, according to The World Bank. Both have rebounded since. Austria’s economy grew 3.3% in Q3 2021, while Russia’s grew by 3.4% year over year (YOY) in September 2021, the latest data available.
We examine the three best Europe ETFs below. All numbers below are also as of Oct. 29, 2021.
- Performance Over One-Year: 83.1%
- Expense Ratio: 0.51%
- Annual Dividend Yield: 1.65%
- Three-Month Average Daily Volume: 21,779
- Assets Under Management: $92.0 million
- Inception Date: March 12, 1996
- Issuer: BlackRock Financial Management
EWO tracks the MSCI Austria IMI 25/50 Index, which is designed to measure the performance of a broad range of companies trading on the Austrian market. The ETF provides broad-based exposure to the Austrian economy, but it is heavily tilted toward financials, industrials, energy, materials, and utilities.
The fund targets value stocks and is probably the best option for investors looking for specific exposure to the Austrian market. Its top three holdings are Erste Group Bank A.G. (EBS:WBO), a financial services provider; OMV A.G. (OMV:WBO), an integrated oil, gas, and petrochemical company; and Class A shares of VERBUND A.G. (VER:WBO), an electricity provider.
- Performance Over One-Year: 74.2%
- Expense Ratio: 0.59%
- Annual Dividend Yield: 3.64%
- Three-Month Average Daily Volume: 139,009
- Assets Under Management: $664.4 million
- Inception Date: Nov. 9, 2010
- Issuer: BlackRock Financial Management
ERUS tracks the MSCI Russia 25/50 Index, an index providing exposure to a broad range of Russian equities. It is a multi-cap, blended fund that is heavily weighted toward the energy sector. Other sectors receiving significant weight include financials and materials stocks; together, more than 85% of the portfolio consists of stocks in these three sectors.
Because of its heavy emphasis on energy stocks, ERUS can display significant volatility. ERUS is also top-heavy, with nearly half of invested assets allocated to the top three holdings. These are PJSC Gazprom (GAZP:MIC), a state-owned multinational energy company; Sberbank Russia PJSC (SBER:MIC), a state-owned banking and financial services company; and LUKOIL PJSC (LKOH:MIC), a multinational energy company.
- Performance Over One-Year: 67.1%
- Expense Ratio: 0.61%
- Annual Dividend Yield: 2.46%
- Three-Month Average Daily Volume: 3,392,994
- Assets Under Management: $1.7 billion
- Inception Date: April 24, 2007
- Issuer: VanEck
RSX tracks the MVIS Russia Index, an index composed of publicly traded companies that are incorporated either in Russia or outside of Russia but have at least 50% of their revenues or related assets in Russia. About 95% of RSX holdings are Russian equities, with the large portion of the remainder representing Cyprus.
Energy, materials, and financials are the sectors receiving the largest weightings. While RSX is slightly more expensive than ERUS above, it has significantly higher liquidity.
The top holdings of RSX include sponsored American depositary receipts (ADRs) of Sberbank Russia PJSC (SBER:LON); sponsored ADRs of PJSC Gazprom (OGZD:LON); and sponsored ADRs of LUKOIL PJSC (LKOD:LON), all described above.
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