The BEL 20 is the main benchmark for the Belgian stock market. It tracks the performance of the 20 largest public companies in the country. This makes it a popular choice for Belgian investors. But how do you invest in it? And should you?
We show why the BEL 20 seems like an attractive investment. But we go on to explain why there are better options for Belgian investors. We cover alternative indexes and ETFs that are more diversified. We then highlight Curvo as an interesting proposition if you don't want to manage your own investments.
The BEL 20?
The BEL 20 index was launched in 1991 to track the performance of the top 20 companies operating in Belgium. All the companies on the list must follow strict criteria, including having a significant free-floating market capitalisation. In non-finance speak, this means that enough shares in the company must be tradeable, instead of being locked up by founders or directors.
Companies in the BEL 20 don’t actually have to be Belgian, but they must be active in the country. Famous companies that are part of the index include KBC, Proximus, Solvay and AB InBev.
Returns of the BEL 20
The BEL 20 has returned an average 6.9% per year since 1994. In other words, a €10,000 investment in 1994 would have resulted in about €57,000 today.
This isn't bad! But it's not great either when compared to other similar countries. The MSCI World index, which is composed of stocks from all "developed" markets (Europe, US, Australia, Japan, etc…), has returned an average 8% per year during the same period.
And as we'll see later on, there are other issues with investing in the BEL 20 besides poorer performance.
How to invest in the BEL 20
The BEL 20 is an index, and you can't invest directly in an index. Instead, you need to invest in a fund that tracks the BEL 20 as well as possible. The fund buys shares of each company in the BEL 20. It then makes sure that it sells or buys the right shares when the index changes, for instance when they remove a company from the index.
The easiest type of fund for Belgians to buy are ETFs, or exchange-traded funds. You must buy ETFs through a stock exchange. And you need an account with a broker to trade on a stock exchange.
There's only one ETF in Europe that tracks the BEL 20 index: "Lyxor BEL 20 TR (DR) UCITS ETF - Dist". It is identified by its ISIN code FR0000021842. The fund is offered by Lyxor, a large French fund provider.
Choosing a broker to buy the Lyxor BEL 20 ETF
You need an account with a broker to buy any ETF, including our Lyxor BEL 20 ETF. There are many brokers to choose from in Belgium, and each has their pros and cons.
An important criterion to choose a broker is price. Each broker charges a fee per transaction that you make. Through our tool to compare broker fees, you can see that the cheapest broker to buy our BEL 20 ETF is DEGIRO. DEGIRO is a Dutch broker that is now owned by a German company. If you feel more comfortable with a Belgian broker, Re=Bel is a good option as it's owned by Belfius. Bolero, owned by KBC, is also a popular option among many Belgians.
Price is not the only consideration to take into account when choosing a broker. For this article, we decided to use Bolero for a few reasons:
- It's been around for a long time. Bolero started in 1999 and was one of the first Belgian online brokers.
- It's owned by KBC. The backing of a large bank makes it more secure.
- They handle all Belgian taxes. They automatically withhold and declare the transaction tax (TOB) for us. Foreign brokers usually don't offer this service. Instead, they shift the administrative task (and fiscal risk!) onto the customer.
Downsides of the Lyxor BEL 20 ETF
Before we cover the steps to buy the ETF through a broker, we highlight some of the downsides of the BEL 20 ETF from Lyxor.
It’s a distributing fund
There are accumulating and distributing funds, depending on how they treat dividends. Belgium has a 30% tax on dividends. That's why from a tax perspective, we prefer accumulating funds for Belgian investors. Indeed, accumulating funds reinvest the dividends so you don't need to pay any tax on them. And accumulating funds are even more attractive because Belgian investors don't need to pay any capital gains taxes on stocks.
The ETF is expensive
Fund providers charge a fee for managing the fund, also called the "total expense ratio" or TER. It's always a percentage of your investment that you need to pay each year. The TER of the Lyxor BEL 20 ETF is 0.50%, making it one of the pricier funds available. For comparison, a CAC 40 fund (the "French BEL 20") by Xtrackers has a total expense ratio of 0.20%.
Unfortunately, because the ETF from Lyxor is the only one available for the BEL 20, we can't do much about these downsides.
Buying the BEL 20 ETF
Suppose we follow through and buy the Lyxor BEL 20 ETF with a broker. How does it work?
We are going to use Bolero as an example. It's not known to be the cheapest broker, but it is one of the most reliable as it's owned by KBC and has existed since 1999.
The first step is to deposit money towards your Bolero account. You’ll be able to buy your ETF. When you’re logged in, search for the ETF with "bel 20". You will see many results, but most of them are for the index or a variation thereof, and you can't actually buy them. Instead, make sure you click on the ETF indicated by "Tracker":
You’ll then need to calculate how many shares you can buy. Bolero does not offer fractional shares, like most brokers in Belgium. This means that you must buy whole units of the ETF. At the time of writing, the price of the ETF is €54.26 per share (this will surely be different when you're reading this). If we wish to invest €1,000, we will be able to buy 18 shares. This leaves us €23.32 as cash, to cover for instance broker fees and taxes.
The downsides of investing in the BEL 20
The BEL 20 is an easy way to invest in the Belgian economy as a whole. But it's unlikely to become a core component of a solid portfolio that will bring you success over the long term.
You invest in just a single country
When you invest only in Belgium through the BEL 20, you expose yourself to bad things that may impact the country. This poses a large risk for your long-term savings. Diversifying across different countries (and even continents) is the key to reduce this risk.
No tax-efficient BEL 20 ETF is available
The only ETF that tracks the BEL 20 is distributing. This means you'll have to pay a 30% tax on all dividends, which willl have a significant negative impact on your returns over the years. An accumulating fund is the way to avoid the dividend tax, but unfortunately no accumulating BEL 20 fund exists.
Belgium represents only 0.24% of the world economy
Investors tend to invest in what they know. They feel like they have an edge as they understand local dynamics. Many Belgians invest in the BEL 20, the Dutch invest in the AEX index, Americans in the S&P 500 index, and so on. You won't hear of many Americans investing in the BEL 20. This tendency is called "home bias" and usually leads to suboptimal investment returns.
Belgium represents only 0.24% of the world economy. If you invest mostly in the BEL 20, you're excluding 99.76% of the investable market. There are many great companies outside of Belgium! We saw earlier that the MSCI World index has seen better returns over the last 30 years than the BEL 20 index. So by focusing on Belgium, you leave out the chance for a higher return on your investments.
Furthermore, the BEL 20 excludes many sectors. For instance, technology is hardly represented because Belgium isn't particularly competitive in that market. On the other hand, you're likely to be over-invested in real-estate.
You invest in just 20 companies
Twenty companies isn’t sufficient diversification. Each company makes up too much of your investments. It's a risky situation because you're severely impacted when something bad happens to one of the companies. To reduce risk, it's best to diversify across many companies, sectors and countries.
Alternatives to the BEL 20
There are better options than the BEL 20 that offer more diversification.
MSCI World index
To decrease risk and increase expected returns, a global outlook is best. Diversifying globally is a more sensible approach to investing than the top 20 Belgian companies.
The MSCI World index consists of about 1,500 stocks from 23 countries that economists qualify as "developed": United States, Germany, Japan, United Kingdom, Australia… This is 750 times more stocks than the BEL 20 index!
A popular ETF that tracks the MSCI World Index is IWDA (ISIN: IE00B4L5Y983). IWDA is offered by iShares, a brand of BlackRock. We saw earlier that the index has performed better than the BEL 20 over the last 30 years:
FTSE All-World index
Another option we like is the FTSE All-World index. Compared to the MSCI World index, the FTSE All-World index is even more diversified: it consists of about 3,700 stocks. It increases diversification in two ways: it includes emerging markets such as China, Taiwan, or Brazil. But it also invests in medium-sized and small companies, whereas MSCI World consists of only the largest companies. The FTSE All-World index is a great way for investors to hold a significant portion of the world's stocks. For example, companies such as Apple, Microsoft and Amazon are part of the index.
A popular ETF that tracks the index is VWCE (ISIN: IE00BK5BQT80). The fund, offered by Vanguard, currently holds more than €11 billion under management. It has seen a similar performance to the MSCI World index (note the graph starts in 2005):
There are many more ETFs out there. If you're not sure if either of these fits you, we recommend you read our top ETFs for Belgians.
Curvo Growth: the most diversified alternative
Invest in 7,5000 companies through Curvo
The Curvo Growth portfolio is a great alternative to the BEL 20. It's composed of two broadly diversified funds, both offered by Vanguard:
- FTSE Developed All Cap Choice index (ISIN: IE00B5456744)
- FTSE Emerging All Cap Choice index (ISIN: IE00BKV0W243)
The Curvo Growth portfolio addresses the shortcomings of the BEL 20. It invests in over 7,500 companies from 40 different countries, from both "developed" and emerging countries, and across all sectors. It actually includes the top Belgian companies 🇧🇪 so you do get a (very) small exposure to them!
We saw that a global investment earns a better return and is less risky than concentrating on a single country, such as through the BEL 20. The performance of the Curvo Growth portfolio illustrates this:
Curvo vs the other alternatives
Why would you choose Curvo over an investment in the MSCI World index or the FTSE All-World index?
Choosing a single ETF is not the entire story when investing your life savings. For success over the long term, you need to build a portfolio of ETFs that is suited to your goals, your appetite for risk and your capacity for taking risks. But this is not an easy task, as there are thousands of ETFs to choose from. Furthermore, this portfolio of funds needs to be kept in balance over time, and adapt to changes in your life situation.
Managing your life savings through a broker can be challenging:
- You need to teach yourself. Figuring out how to start and understanding the intricacies of investing with ETFs requires research.
- The allocation of your portfolio is in your hands. Everyone has a portfolio that is right for them, depending on their financial goals, their financial situation, their tolerance to risk, their capacity for taking risks… And when you manage your own investments through a broker, you are responsible for finding that right portfolio for you and sticking with it.
- You need to learn how to rebalance your portfolio. Do you wish to do so quarterly, yearly, never? How to decide?
- It's hard to pick a broker. There are many options. How do you pick the one that you feel safe with?
- Investing according to your ethical values is a challenge. Sustainable investing is a broad topic. It takes considerable effort to understand the sustainability criteria that underlies each ETF, and decide which ones align with your values.
- You need to figure out how taxes work. Taxes are complicated, yet not taking them into account in your investment decisions can cost you a lot in the long term. Also, they change all the time!
- Discipline. It requires discipline to stay the course.
We built Curvo to solve all these complexities of good investing, so you don't have to worry.
Advantages of Curvo
Investing with Curvo can help you set yourself up for long-term success:
- Portfolio of funds built for you. After you download the Curvo app, we ask you a few questions to learn about your goals and tolerance for risk. Based on your answers, you’ll be assigned a diversified portfolio of index funds. No need to pick specific ETFs, it’s done for you.
- Diversification. We firmly believe in the power of diversification to lower risk and seek investment returns. Each Curvo portfolio consists of over 7,500 companies, diversified across sectors and countries.
- Invest sustainably. Curvo focuses on one guiding principle: we don’t invest in companies that we consider destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are all excluded.
- Automated monthly investments. Using direct debit, you can set up a savings plan through the app and make money whilst you sit back and relax.
- Fractional shares. All your money is invested. There’s no cash left sitting on the side.
- Start from €50. No need for a large lump sum to get started.
- We partner with itsme. Security is at the core of Curvo. That's why we work with itsme to keep your data secure.
- Rebalancing done for you. No need to worry about keeping your portfolio in balance, Curvo will handle this for you.
- Project yourself into the future. To help you plan your life, you can see how much you can expect your portfolio to be worth in the future.
- No transaction tax. The Belgian transaction tax isn't applicable to the funds in the Curvo portfolios. So you’re saving between 0.12% and 1.32% every time you buy or sell.
- Withdraw anytime. There’s no long-term contract or exit fees if you wish to stop investing with Curvo.
- Overseen by the financial regulators. Your investments are secure and regulated by the Dutch (AFM) and Belgian (FSMA) regulators.
The BEL 20 has performed relatively well in the last three decades. However, it does have some limitations for those who are investing for the long term. The concentration on 20 companies in a single country increases the likelihood of a bad outcome. Also, the only ETF that is available is tax-inefficient for Belgians.
We saw two alternatives to the BEL 20: the MSCI World index and the FTSE All-World index. Both are diversified across countries and sectors. In our eyes, they are an improvement over the BEL 20 for most investors.
But these ETFs still require you to manage your own investments through a broker. This can be intimidating, challenging, and time-consuming. We built Curvo to address these complexities and simplify good investing for young Belgians. With Curvo, you invest in the right portfolio built for you and your goals. And it's really easy to adopt good saving habits by automating your monthly contributions. Explore how Curvo works.
What you should do now
Here is an action checklist for you:
- Be certain that you’re happy investing in the BEL 20. Consider alternatives such as the MSCI World index or the FTSE All-World index.
- Choose the broker that makes the most sense for you. Use our tool to compare brokers to help you decide.
- Send money to the broker and hit that "Buy" button!
- Do you want more diversification and less hassle when investing? Explore Curvo.