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 has been uneven. Global energy and food prices have skyrocketed as a result of inflation, Russia's invasion of Ukraine, and other geopolitical factors. Some analysts anticipate a recession in Europe along with an impending energy crisis as winter approaches. But the European Union's economy grew by a solid 4% in Q2 2022, allaying fears of an imminent recession.
- 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 TUR, EWU, and DBEU.
- The top holdings of these ETFs are BIM Birlesik Magazalar A.S., AstraZeneca PLC, and Nestlé S.A., respectively.
There are 37 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 -15.8% compared with the S&P 500’s total return of -2.5%, as of Aug. 17, 2022. The best-performing Europe ETF, based on performance over the past year, is the iShares MSCI Turkey ETF (TUR).
We examine the three best Europe ETFs below, based on performance over the past year. All numbers below are as of Aug. 18, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
- Performance over one year: -1.5%
- Expense ratio: 0.57%
- Annual dividend yield: 3.45%
- Three-month average daily volume: 197,617
- AUM: $285.4 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, materials, and consumer staples 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.
The top three holdings of TUR are BIM Birlesik Magazalar A.S. (BIMAS.E: IST), an operator of food and basic consumer goods retail stores; Eregli Demir Ve Celik Fabrikalari T.A.S. (EREGL.E:IST), a manufacturer of iron and steel products; and Turk Hava Yollari A.O. (THYAO.E:IST), also known as Turkish Airlines, an international air carrier.
- Performance over one year: -2.2%
- Expense ratio: 0.50%
- Annual dividend yield: 2.68%
- Three-month average daily volume: 3,583,480
- AUM: $3.5 billion
- Inception date: March 12, 1996
- Issuer: BlackRock Financial Management
EWU targets the MSCI United Kingdom Index, an index composed of large- and mid-cap companies based in the U.K. Many of the large-cap names in EWU's portfolio are found across a variety of Europe-focused ETFs, but EWU nonetheless provides strong targeted exposure to the U.K. equities market. Consumer staples, financials, and energy stocks make up the largest portions of the fund's portfolio.
The top holdings of EWU include AstraZeneca PLC (AZN:LON), the British-Swedish biopharmaceutical company; Shell PLC (SHEL:LON), an oil and gas company; and HSBC Holdings PLC (HSBA:LON), a bank and financial services holding company.
- Performance over one year: -2.7%
- Expense ratio: 0.45%
- Annual dividend yield: 2.49%
- Three-month average daily volume: 100,081
- AUM: $514.9 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.
The top three holdings of DBEU 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.
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