The EURO STOXX 50 Index measures the performance of the top blue-chip stocks in the eurozone, an economic region that includes the 19 countries that have adopted the euro as a national currency. Investors interested in gaining this kind of exposure through a EURO STOXX 50 exchange-traded fund (ETF) have plenty of good options to consider. However, it is important to understand that most options available in the category are domiciled in Ireland, Luxembourg or another European country.
In fact, as of December 2015, there is only one firm offering EURO STOXX 50 ETFs domiciled in the United States. This list leads off with that firm's two U.S.-domiciled products, followed by some of the best foreign-domiciled ETFs in the category. Before considering a foreign-domiciled ETF, investors in the United States should seek advice on the tax implications of foreign investments.
To compile the EURO STOXX 50 Index, the largest companies by free-float market capitalization in each eurozone country are added to a selection list. The largest 50 companies from the selection list that meet minimum liquidity requirements are then selected for inclusion in the index. The index is reviewed and reconstituted annually in September, with special-case rules for mid-year additions and removals. Component stocks in the index are weighted according to free-float market capitalization. Component weights are capped at 10%. The index is reweighted quarterly, according to updated market caps.
As of December 2015, the largest component of the EURO STOXX 50 Index, the French oil and gas company Total, was weighted at 4.9%, followed by Bayer at 4.4%, Sanofi at 4.3%, Anheuser-Busch InBev at 4.2% and Daimler at 3.6%. Geographic representation is dominated by France at 36.5% and Germany at 31.9%, followed by Spain at 10.8%, Italy at 7.7% and the Netherlands at 7.6%. The sector breakdown is led by financial stocks with an allocation of 26.2%, followed by industrial stocks at 12.1%, consumer staples stocks at 11.4%, health care stocks at 11.2% and consumer discretionary stocks at 10.8%.
1. SPDR EURO STOXX 50 ETF
The American financial services company State Street Global Advisors is home to the only two ETFs in the United States to track the EURO STOXX 50 Index. The larger and more liquid option is the SPDR EURO STOXX 50 ETF (NYSEARCA: FEZ), which was launched in October 2002. As of December 2015, it had nearly $4.2 billion in net assets and a three-month average trading volume of more than 2 million shares per day. This fund seeks to match the investment results of the EURO STOXX 50 Index by investing in a portfolio that has the same investment profile as the mix of stocks held in the index. It has an expense ratio of 0.29%.
While FEZ is priced in U.S. dollars, its underlying assets are denominated in euros. Consequently, an investment in FEZ or one of the foreign-domiciled ETFs described below comes with some currency risk investors need to consider. Specifically, fluctuations in the exchange rate between dollars and euros affect the dollar-denominated value of the fund's underlying assets. A decline in the value of the euro against the dollar equates to a decline in the dollar-denominated value of the fund's assets, which is a loss for a dollar-based investor. On the other hand, a dollar-based investor benefits when the euro strengthens and pushes up the dollar-denominated value of the fund's assets. Investors who foresee a strengthening dollar or just want to avoid currency risk associated with the euro altogether should consider the currency-hedged fund described next.
2. SPDR EURO STOXX 50 Currency Hedged ETF
State Street Global Advisors launched the SPDR EURO STOXX 50 Currency Hedged ETF (NYSEARCA: HFEZ) in June 2015 to provide exposure to large-cap eurozone equities without the currency risk. The bulk of this fund is constructed in exactly the same way as its unhedged counterpart. However, it also includes a hedge component that involves a rolling investment in one-month foreign-currency forward contracts designed to offset the fund's exposure to the euro. This technique protects investors from losses associated with a weakening euro. However, it also eliminates potential gains from a strengthening euro.
As of December 2015, about six months after its launch, HFEZ remains a very small ETF. It has net assets of about $10.7 million and an average trading volume of about 4,000 shares per day. It has an expense ratio of 0.32%, which is just three basis points higher than its nonhedged counterpart.
3. Db x-trackers EURO STOXX 50 UCITS ETF
The db x-trackers EURO STOXX 50 UCITS ETF is one of the largest ETFs available in Europe to track the EURO STOXX 50 Index. The fund was launched in April 2007 by Deutsche Asset & Wealth Management Investment, a subsidiary of Deutsche Bank Group in Germany. It is domiciled in Luxembourg and denominated in euros. As of December 2015, the db x-trackers EURO STOXX 50 fund had more than €5.2 billion in net assets across its 50 component stocks. It has average trading volumes under 3,000 shares per day. Like its U.S.-domiciled competitors, this ETF seeks to invest in a portfolio of stocks that matches the EURO STOXX 50 Index as closely as possible. It has an exceptionally low expense ratio of 0.09%.
4. iShares Core EURO STOXX 50 UCITS ETF
The iShares Core EURO STOXX 50 UCITS ETF is another solid fund for investors considering a foreign-domiciled ETF. This fund was launched in January 2010 in Ireland and is denominated in euros. As of December 2015, it had net assets of nearly €1.7 billion and a three-month average daily trading volume of more than 10,000 shares, making it the most heavily traded of the foreign-domiciled ETFs. It has a very low expense ratio of 0.1%.
5. Amundi ETF EURO STOXX 50 UCITS ETF
The Amundi ETF EURO STOXX 50 UCITS ETF is produced by Amundi Asset Management, a majority-owned subsidiary of the European banking giant Crédit Agricole Group. This fund began operation in September 2008. It is domiciled in France and denominated in euros. As of December 2015, it had net assets of nearly €1.5 billion and an average trading volume of fewer than 1,000 shares per day. The fund has an expense ratio of 0.15%.