A Europe ETF is a great way to diversify and invest in many European stocks in one go. It's a good addition to a balanced portfolio of ETFs if you want to control the allocation over regions. But there are many ETFs available that focus on Europe, and not all that equally suited for Belgian investors. Some are poorly diversified, others aren't tax-efficient, or they're too expensive. We picked out the best Europe ETFs so you don't have to.
Why Europe ETFs are a good investment
European countries mostly have well established and mature economies. By investing in an ETF that tracks a Europe index, you are exposed to the economy of the whole continent and will benefit from the stability and growth potential of the European market. Diversifying usually leads to better returns than putting all your money in one country, for example the BEL 20 index for Belgium, or worse, the stock of a single company. Diversifying your investment portfolio is akin to not putting all your eggs in one basket.
The MSCI Europe index is a good benchmark for the performance of the European stock market. It includes 425 companies across 15 European countries, representing both Eurozone and non-Eurozone members. It has had an average annual growth rate of 9.6% since December 1978.
How to select the best Europe ETFs
There are some important criteria to look for when finding good Europe ETFs for Belgian investors.
Follows an index
The style of investing based on index funds, also called passive investing, is a superior strategy for most people. There’s no need to spend time analysing individual bonds, you can just follow an index of companies or governments.
Examples of indexes that track the European stock market are MSCI Europe, STOXX Europe 600, STOXX EURO 50, and EURO STOXX.
Accumulating, not distributing
Tax-wise, accumulating funds are preferred over distributing funds to avoid paying a 30% tax on dividends. Plus, they're more in line with the passive investor because you don't have to worry about reinvesting the dividends.
Diversified across many sectors
Diversification is important when investing because it helps to reduce the overall risk. The basic idea behind diversification is to avoid having all your eggs in one basket, so that the impact of a single negative event is reduced. For example, if you only invest in the European banking industry, through for instance the STOXX Europe 600 Banks index, your entire investment portfolio will be negatively impacted if the sector is going through a crisis. However, if you had invested in Europe ETF that diversifies across different industries, the impact on the portfolio will be much less severe.
Most ETFs are already low-cost compared to active funds. But when we have the choice between several ETFs tracking the same index, we prefer a cheaper one (all other things being equal). The cost is measured by the total expense ratio (also known as the TER).
Domiciled in Ireland or Luxembourg
Both countries have special tax treaties with many countries around the world. This makes it fiscally advantageous to invest in ETFs domiciled in Ireland or Luxembourg. You can recognise these by their ISIN code that starts with "IE" (Ireland) or "LU" (Luxembourg).
Larger funds are less likely to be shut down. A reasonable guideline is to consider only ETFs that have at least €100 million under management.
Physical replication is preferred over synthetic replication to reduce third-party risk.
The best Europe ETFs for Belgians
Let's start with an overview of our top Europe ETFs. We chose only accumulating ETFs to avoid the 30% tax on dividends, and that are registered in Ireland or Luxembourg for tax efficiency.
iShares Core MSCI Europe (IE00B4K48X80)
This is a popular ETF that offers investors broad exposure to the European stock market. It tracks the MSCI Europe Index, which is composed of 425 large and medium-sized company stocks across 15 developed countries in Europe. By replicating the performance of this index, the ETF provides a diversified portfolio of European stocks, encompassing a wide range of sectors such as financials, industrials, consumer goods, and healthcare. It has a cheap yearly cost of 0.12% and is managed by iShares (BlackRock).
Based on historical data of the MSCI Europe index, the ETF has yielded an average 9.6% per year since 1979:
Lyxor Core STOXX Europe 600 (LU0908500753)
The ETF tracks the performance of the STOXX Europe 600 index. As the name suggests, it includes 600 large, mid and small companies which are tracked across 17 European countries, both Eurozone and non-Eurozone countries. This makes it the most diversified ETFs in our selection. It's also one of the cheapest we've come across, with an annual cost of only 0.07%.
Based on historical data of the STOXX Europe 600 index, the ETF has yielded an average 7.6% per year since 1987:
iShares Core EURO STOXX 50 (IE00B53L3W79)
This popular ETF tracks the EURO STOXX 50 index, comprises 50 of the largest stocks from the Eurozone. The ETF is designed to offer investors exposure to some of the leading "blue-chip" companies (meaning well-established and known) across various sectors in the Eurozone. These sectors include industries like banking, automotive, healthcare, and technology. The ETF is managed by iShares (BlackRock) and a low annual cost of 0.10%.
Based on historical data of the EURO STOXX 50 index, the ETF has yielded an average 7.2% per year since 1987:
Xtrackers MSCI Europe ESG (IE00BFMNHK08)
The ETF tracks the MSCI Europe Low Carbon SRI leaders index, which is a sustainable version of the MSCI Europe index. It essentially invests of the companies in the index that have low carbon emissions and a high ESG rating. The ETF is managed by Xtrackers (which is part of the DWS Group) and costs 0.20% per year.
Based on historical data of the index, the ETF has yielded an average 8.0% per year since 2010:
Which Europe ETF to go for?
If you're looking for the cheapest and most diversified Europe ETF, we suggest you go for the Lyxor Core STOXX Europe 600 ETF (LU0908500753).
Else, if you want to invest only in Europe's largest companies, the iShares Core Euro STOXX 50 ETF (IE00B53L3W79) makes sense.
Lastly, if sustainability is important to you, the Xtrackers MSCI Europe ESG ETF (IE00BFMNHK08) is a good option. It excludes non-sustainable companies involved in controversial activities, including fossil fuels. Do note that the selection comes at the price of a slightly more expensive ETF.
The downsides of Europe ETFs
There are a few drawbacks of investing in Europe ETFs.
You leave returns from other countries on the table
When you invest only in European companies, you miss out on potential higher returns from other parts of the world. For instance, the US stock market has outperformed the European over the last decades. And the expected return on emerging markets such as China or Brazil is also higher than the European stock market.
When comparing a Europe fund to a global fund, we see that the global fund has outperformed since 1990. The compound annual growth rate of an MSCI All-Country World ETF was 8.2%, compared to 7.8% for an MSCI Europe ETF:
Europe can shift quickly
Europe has a complex political landscape, and events such as elections (or referendums like Brexit), policy changes and regional conflicts can impact markets. Economic issues, like debt levels in some countries, can also pose risks especially as Europe isn't growing as fast as some other parts of the world.
It's dangerous to put all your eggs in one basket. Similarly, it's dangerous to invest only in Europe.
Curvo, a more diversified and global investment
We understand that investing in ETFs yourself can be daunting, especially for someone who's just starting to invest and trying to figure out which Europe ETF to choose. We built Curvo to take away all the complexities of passive investing in ETFs and index funds. No need to search through thousands of ETFs or scour wikis in order to understand how to select a fund.
An option for Belgian passive investors is to invest through Curvo with NNEK, a Dutch investment firm supervised by the Dutch regulator (AFM). In particular, the Growth portfolio is a good alternative to all the Europe ETFs listed above. It's composed of two broadly diversified funds, both offered by Vanguard:
- FTSE Developed All Cap Choice index (IE00B5456744)
- FTSE Emerging All Cap Choice index (IE00BKV0W243)
The Growth portfolio addresses the shortcomings of investing only in a Europe index. The portfolio invests in over 7,500 companies from 40 different countries (both "developed" and emerging countries) and across all sectors. So it offers a lot more diversification!
Invest in a portfolio tailored to you
Based on a questionnaire, the right mix of stock and bond funds is selected that correspond to your goals and appetite for risk. The portfolios are managed by NNEK, a Dutch investment firm supervised by the Dutch regulator (AFM). Each portfolio consists of highly diversified funds, and you'll be investing in 7,500 different companies.
Get a better return on your time
Don't waste energy figuring out the intricacies of good investing. Start your investment plan and spend your free time on the things that matter most to you.
Put your savings on autopilot
Investing part of your income every month is one of the best financial habits you can adopt for your financial future. Curvo makes this really easy. Choose an amount and it will automatically be invested every single month. Saving is easy when it's automated!
All your money is invested
With most brokers, you can only buy whole shares of an ETF. This can be cumbersome when the price of an ETF is high, and you'll always have cash sitting on your brokerage account doing nothing. But through Curvo, your investments work with fractional shares. This means that all your money is put to work.
No entry or exit fees
There are no transaction fees, entry or withdrawal fees.
Tax-optimised for Belgians
Trading in any ETF is liable for the Belgian transaction tax (TOB). You need to pay this tax every time you buy or sell an ETF. But one advantage of Curvo is that the Belgian transaction tax is not applicable. This means you’re saving between 0.12% and 1.32% per transaction.
Investing sustainably is challenging because everyone has different beliefs and values. We focus on one guiding principle: none of the portfolios invests in companies that we consider destructive to the planet.
Learn more about how Curvo works.
We discussed four popular Europe ETFs available to Belgians and should help you decide which is best for you. We looked at the advantages of investing in Europe ETFs, including market exposure and the mitigation of home bias. But be careful not to invest only in Europe ETFs, as you will leave investment returns coming from other parts of the world on the table.
Questions you may have
Which ETF has the highest return?
Over the last 15 years, any ETF that tracks the Nasdaq-100 index, such as the iShares Nasdaq 100 ETF (IE00B53SZB19), has vastly outperformed the rest of the market. Between 2007 and 2023, it had an average yearly return of 15.7%!
But don't be seduced by its past performance. The main reason is that large tech companies like Apple and Amazon, which the Nasdaq-100 mostly consists of, have had great performance the past decade. But it's not a given that they will continue to outperform over the next decades. To prevent a bad outcome, it can be wise to diversify outside of just American tech companies.
How are ETFs taxed in Belgium?
You pay the transaction tax each time you buy or sell an ETF. The rate ranges between 0.12% and 1.32% of the transaction amount.
The tax on dividends applies only to distributing funds (not accumulating funds).
And the Reynders tax is applicable only to funds with at least 10% invested in bonds.