European stocks have fallen in and out of favour over the years, but given the size and range of economies in Europe we provide options to cover large-cap, small-cap, all-cap, income and value investing, along with a currency hedged version as well.
Dropped from 2017 selection
WisdomTree Europe SmallCap Dividend (DFE)
This fund is very good at what it does, but we have decided to remove it based on some performance issues and after a discussion on whether it offers the best way to extract returns from small-caps or income in the European market. It has been replaced by a dedicated small-cap ETF and an income ETF.
New list
Xtrackers Euro Stoxx 50 UCITS ETF (XESC)
This fund tracks the 50 largest blue-chip stocks across the eurozone, covering 11 countries and a range of sectors. The Euro Stoxx 50 is a quick and easy way to buy into the biggest companies on the continent and we believe the Xtrackers ETF remains the best way to do so. The £5.2bn fund is by far the largest product tracking this index and easily the most liquid. There is a cheaper ETF charging 0.05 per cent provided by HSBC, but the panel still believes XESC is better in terms of performance and trading costs.
Vanguard FTSE Developed Europe ex UK (VERX)
Investors who fancy wider European equity exposure have a range of indices to choose from, including MSCI Europe and other options from Stoxx. However, the panel believes that the best way to get coverage of a wide range of companies, sectors and countries is via Vanguard FTSE Developed Europe ex UK. It is the cheapest ETF tracking this index and at £900m is large and liquid. iShares offers a larger MSCI Europe alternative, but it costs more than three times VERX’s 0.09 per cent ongoing charge and has underperformed it over the long term. Lyxor offers a Stoxx 600 ETF for 0.07 per cent, but this does not exclude UK companies.
NEW: UBS ETF MSCI EMU Small Cap UCITS ETF (UB69)
European smaller companies, which tend to be more exposed to domestic economies, have been some of the best-performing stocks in recent years, and so could form a strong part of a growth portfolio. The MSCI EMU Small Cap index was rated by the panel as the best way to follow the small-cap story, and the UBS ETF the best product. It is not the largest ETF in this space or even generally, with only £175m in assets; however its bid/offer spread is low and its liquidity is good. iShares offers a much larger and liquid product, but this carries an ongoing charge of 0.58 per cent compared with UB69’s 0.33 per cent, giving the latter product the edge.
UBS MSCI EMU Value UCITS ETF (UB17)
The outlook for value investing across the globe is improving and Europe is no different. However, products offering true European value exposure remain limited in number. Among the handful, UB17 is by far the standout product and it tracks the best possible index in the MSCI EMU Value, according to the panel. The index weights stocks by price/earnings and price-to-book ratios, and has 125 holdings. UB17 has amassed £278m of assets providing good liquidity and a low enough bid/offer spread, and with a 0.25 per cent charge it is also among the cheapest European value ETFs on offer. iShares also offers a fund with the same ongoing charge and is much larger, however it follows the MSCI Europe Enhanced Value index which has underperformed the UBS product over the long term.
Xtrackers MSCI EMU UCITS ETF GBP Hedged (XD5S)
This sterling-hedged ETF was included for the first time in 2017 following a price cut that led to the removal of the previous incumbent from UBS. Since then, it has significantly grown its assets and now manages over £2bn. With a 0.25 per cent ongoing charge it remains the best product overall for price, size, quality and liquidity for broad European equity exposure hedged back into sterling.
NEW: SPDR S&P Euro Dividend Aristocrats ETF (EUDV)
The European equity market can be an excellent hunting ground for those hungry for income with yields often higher than those available in European high-yield and higher-risk debt. The SPDR product also tracks an S&P index like its peer ETFs in other regions, with the S&P Euro High Yield Dividend Aristocrats index tracking the 40 highest yielders in the eurozone with a focus on dividend sustainability. It currently yields 3.14 per cent and has outperformed rival income strategies over the short and long term. With a 0.3 per cent ongoing charge, £1.1bn in assets under management and excellent liquidity and bid/offer spread, this product is a standout European income ETF.
To view the IC Top 50 ETFs 2018 by category, please click on the links below:
Emerging market equities (four ETFs)
NEW: Sterling corporate bonds (two ETFs)
NEW: Global bonds (three ETFs)
Commodities and precious metals (three ETFs)
