Exchange-traded funds can offer a simple and inexpensive way to gain exposure to the stock market. These strategies offer exposure to European bank equities and are considered promising by Morningstar’s fund analysts.
European financial stocks were the best performers in the first quarter of 2025, gaining 20.7%, beating the Morningstar Developed Markets Europe Index by 15 percentage points. However, President Donald Trump’s tariffs announcement caused a massive selloff in European bank stocks and upended economic projections for the eurozone and other markets in which European banks operate.
In the week following April 2, the European banking sector lost more than 12%, lagging the region’s index by 300 basis points, before recovering some of those losses after Trump’s April 9 partial U-turn.
According to Johann Scholtz, senior equity analyst at Morningstar, there have been some positives for investors from the selloff. “Before the panic generated by the US tariffs, almost all of European banks we cover had a 3-star or even lower Morningstar Stock Rating; now, more than half of them show with a 4-star rating,” he says.
In the short term, the main risk is related to investor concerns about the potentially negative impact tariffs could have on lenders’ profitability and a rise in bad debts among consumers. There’s also the prospect of more aggressive interest rate cuts, which are likely to lower banks’ net interest margins.
“Our primary concern is credit quality,” says Morningstar’s Scholtz.
According to Brian Hall, portfolio manager of the BGF European Value Fund, the recent volatility in the sector is more related to a change in the market sentiment than to any real deterioration in fundamentals. Andrea Scauri, manager of the Lemanik High Growth equity fund, points out that compared with previous crises, European banks now have greater financial stability.
Screening for the Best European Bank Equity ETFs
To help investors find ETFs focused on European banks, we’ve screened 28 ETFs in Morningstar’s Sector Equity Financial Services category for those exposed to Europe with positive Medalist Ratings.
A Gold Medalist Rating means our analysts believe a fund has the greatest chance of outperforming its category over the long term, while a Silver or a Bronze rating means they believe it will outperform its relevant performance benchmark and/or peer group.
In the case of European bank equity ETFs, we have four strategies by three different providers making the list:
- iShares STOXX Europe 600 Banks UCITS ETF EXV1
- iShares MSCI Europe Financials Sector UCITS ETF ESIF
- SPDR® MSCI Europe Financials UCITS ETF STZ
- Xtrackers MSCI Europe Financials Screened UCITS ETF 1C XS7R
We screened for ETFs with Gold, Silver or Bronze Medalist Ratings. None of the four ETFs that made it through the screen hold a Medalist Rating of Gold or Silver, nor are they actively managed.
They track three different benchmarks.
Here’s a closer look at the strategies:
iShares STOXX Europe 600 Banks UCITS ETF EXV1
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★
- Benchmark: STOXX Europe 600 Banks TR
Over the past year, the passively managed iShares STOXX Europe 600 Banks UCITS ETF (DE) rose 36.79%, while the average equity financial services fund gained 5.73%. The fund placed in the eighth percentile for performance and beat its benchmark, the Morningstar Global Financial Services Target Market Exposure Index, by 24.75 percentage points. The £2 billion fund has climbed 20.77% year to date, outperforming the average fund in its category, which fell 0.95%.
iShares MSCI Europe Financials Sector UCITS ETF ESIF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
- Benchmark: MSCI Europe Financials 20/35 Capped Index
The passively managed iShares MSCI Europe Financials Sector UCITS ETF gained 30.7% over the past year, outperforming the average fund in the equity financial services category, which rose 5.73%. The fund placed in the 17th percentile for performance and beat its benchmark, the Morningstar Global Financial Services Target Market Exposure Index, by 18.66 percentage points. The £747.8 million fund has gained 16.12% year to date, while the average fund in its category is down 0.95%.
SPDR® MSCI Europe Financials UCITS ETF STZ
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
- Benchmark: MSCI Europe Financials 20/35 Capped Index
The £403.7 million SPDR MSCI Europe Financials UCITS ETF rose 30.76% over the past year. The gain on the passively managed fund beat the 5.73% gain on the average fund in the equity financial services category, leaving it in the 16th percentile for performance. The fund beat its benchmark, the Morningstar Global Financial Services Target Market Exposure Index, by 18.72 percentage points. Year to date, the State Street fund rose 15.54%, while the average fund in its category fell 0.95%.
Xtrackers MSCI Europe Financials Screened UCITS ETF 1C XS7R
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★
- Benchmark: MSCI Europe Financials ESG Screened 20-35 Select Index
The £59.3 million Xtrackers MSCI Europe Financials Screened UCITS ETF rose 27.82% over the past year. The fund beat its benchmark, the Morningstar Global Financial Services Target Market Exposure Index, by 15.78 percentage points. Year to date, the Xtrackers fund rose 12.24%.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
