3 ETFs for Investing in European Equities

LOW-COST FUNDS: We highlight three ETFs that offer low-cost exposure to eurozone equities, and one ETF for a more tactical investment

Holly Cook 15 January, 2015 | 8:00AM
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Holly Cook: Hello and welcome to Morningstar. Today we're going to be looking at some ETFs that will provide you with exposure to European equities. Joining me is Jose Garcia Zarate. He is a Senior Passive Fund Analyst here at Morningstar. 

Jose, thanks for joining me. 

Jose Garcia Zarate: Thanks for having me. 

Cook: So, let's start with the premise, as it were, that the European Central Bank is soon to launch quantitative easing and that that has the desired effect of strengthening the eurozone economy and is well received by the equity markets. Can you highlight a couple of ETFs for our investors who might want to get exposure to eurozone equities? 

Zarate: I've got a couple of ETFs that track very broad indices that give investors exposure to the European – or the Eurozone actually, large cap equity markets, the EURO STOXX 50 benchmark. One is the Source EURO STOXX 50 ETF (SC0D). It is synthetically replicated and the reason why I've chosen it is because Source has recently cut fees to 5 basis points. So, at the moment it's the cheapest in the market. 

Cook: That's extremely cheap.

Zarate: It is extremely cheap and we at Morningstar like to highlight or stress the message that low fees help to drive performance in the long run. But I understand that some people may be a bit put off by the fact that it is synthetically replicated, even though we at Morningstar have a neutral view on replication methodology. But for those who are seeking a physically-replicated alternative, we perhaps could highlight db x-trackers EURO STOXX 50 ETF (XESC) which charges 9 basis points. 

Cook: So it's slightly more expensive, but for those investors who feel more comfortable with a physical replication that might be one to look at? 

Zarate: Yes, exactly. 

Cook: And what about for investors who might want a bit more of a tactical bet on European stocks? 

Zarate: Well, the thing is that if you assume that the ECB is going to do QE and that QE is going to have a positive effect on the economy, one of the sectors that is likely to benefit the most is the financial sector. Now, personally you may hate banks, but they may actually become very good tactical bets to have in your investment portfolio. And the good thing is that ECB QE should benefit not just the eurozone banks but the European banking sector as a whole. So, I've chosen the Lyxor STOXX Europe 600 Banks ETF (BNK) which provides exposure to the European banking sector including the UK and Switzerland. It charges 30 basis points. 

Cook: That's a very interesting idea. Thanks for giving us those three ETFs, Jose. 

Zarate: You're welcome. 

Cook: For Morningstar, I'm Holly Cook. Thanks for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Invesco EURO STOXX 50 ETF114.32 EUR0.18Rating
Invesco EURO STOXX 50 ETF GBP10,196.00 GBX-1.18Rating
Xtrackers Euro Stoxx 50 ETF 1C GBP6,955.00 GBX-1.20Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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