EU investing

From Bogleheads
Jump to: navigation, search
Euflag.jpg This page contains details specific to investors in the European Union (EU). However, it does not apply to residents of the EU who are also United States (US) citizens or US permanent residents.

EU investing shows how you can apply the Bogleheads investment philosophy if you live in the European Union (EU). In addition to the topics described in the Bogleheads® investing start-up kit for non-US investors and Index funds and ETFs outside of the US you must be aware of a few things described below.

A person's domicile is often the determining factor for many legal aspects, including investing and taxation. Investment funds also have a domicile, and here this too determines the applicable legislation, including taxation.

Introduction

European MiFID II and PRIIPs regulations make it difficult or even impossible for residents of the EU community to purchase funds domiciled outside of the EU. See below for more.

There are few low-cost index mutual funds available in the EU, but there are a lot of index exchange-traded funds (ETFs) available. You can find all the ETFs available in the EU at etfinfo.com[1]. These ETFs are usually domiciled in Ireland or Luxembourg. You should consult with your tax advisor before investing in ETFs. You must carefully read the Key Investor Information Document (KIID) and the prospectus of each ETF you choose. Look for important tax-related information such as registration and reporting in these documents.[2]

The same ETF can have different share classes, and can be listed on several different stock exchanges in different currencies. Look for the ISIN code as unique identifier together with the name. Funds with different trading currency will have a different ticker if traded on the same exchange. If the fund is trading on different exchanges then it may or may not have the same ticker.

Some of the country pages in the Non-US domiciles wiki category contain sample portfolios or suggestions for (ETF) funds. While these can be taken to draft a first portfolio it is good to post a question on the forum as every country is different and the recommendation might change over time.

Non-EU domiciled funds

A European investor purchasing non-EU domiciled funds needs to validate the practical aspects of such a fund.

For example, US domiciled funds distribute their income periodically, and you must pay withholding tax to the US government. There may be other tax-related problems with US domiciled funds, depending on your country of residence. In short, US domiciled funds are not designed for investors from the EU.

EU domiciled ETF providers

Fig.1.Brussels Euronext Exchange

The following are the major companies that provide EU domiciled ETFs. This list is not exhaustive.

EU domiciled providers
Provider Website
Amundi ETF link
BlackRock iShares link
Deutsche Bank db X-trackers link
HSBC ETFs link
Lyxor ETF link
SPDR ETFs Europe link
Vanguard link

EU domiciled ETF exchanges

The following stock exchanges are the primary ones for trading EU domiciled ETFs. This list is not exhaustive.

European stock exchanges
Exchange Website
London (LSE, London Stock Exchange) link
Xetra (Deutsche Börse, Frankfurt) link
Euronext (Amsterdam, Brussels, Lisbon, Paris) link
Milan Stock Exchange (Borsa Italiana) link
SIX Swiss link
Chi-X link

EU legislation : UCITS, MiFID II and PRIIPs

While every EU country has its own legislation there are a number of EU guidelines that most EU countries implement:

  • UCITS
  • MiFID II
  • PRIIPs

UCITS (Undertakings for Collective Investment in Transferable Securities Directive) is an EU directive that allows mutual funds and ETFs to operate freely throughout the EU on authorisation from a single member state.

Since 2018, the European MiFID II (Markets in Financial Instruments Directive) and PRIIPs (Packaged Retail and Insurance-based Investment Products) have become effective. The goal of this legislation is to protect the individual investor.

PRIIPs requires a retail investment product such as an ETF to provide a Key Information Document in a clear and relatively tightly specified format. US domiciled funds and ETFs do not currently produce such documents, and because the EU is not a primary market for them, few if any have indicated that they will do so. Products lacking these documents cannot be offered to EU investors.

As a result, it is now difficult or even impossible for residents of the EU community to purchase US domiciled funds. Shares purchased before the regulation came into effect can be kept and sold, but EU residents can generally no longer buy new shares of these funds or ETFs.

Index funds and ETFs outside of the US

Index funds and ETFs were first created in the US and are now widely available outside of the US.

Depending on the domicile of the fund it is subject to local legislation leading to local differences. Notable characteristics that are explained in the main article on index funds and ETFs outside of the US, are:

Sample portfolios

There are many Boglehead inspired portfolios that can be created. Here below are some EU investor fund examples that are suitable for both accumulating and for distributing portfolios. Where available, funds from both iShares and Vanguard are shown. Multiple choices are provided for the bond funds both in the accumulating and the distributing lists.

Two main approaches to investing for non-US retail investors are considered:

  • Simple portfolios
  • Complex portfolios

Simple portfolios

The simplest portfolios are based on using index funds (mutual funds - where these are easily available or the corresponding ETFs) to build a low-cost portfolio with a small number of funds that are easy to re-balance and follow the spirit and principles of the Bogleheads® approach.

Complex portfolios

Investors may wish to move beyond simple three, four or five-component portfolios and either include additional components; slice and dice existing components; or purchase individual stocks and bonds.

Lists of ETF funds

The investor will need to assess their risk appetite and other criteria and decide which particular global bond fund ETF suits their purposes. The more cautious investor might choose to invest in one of the government ETFs or alternatively invest in an aggregate version.

The Xtrackers global bond ETF (DBZB) is domiciled in Luxembourg and the investor should review the tax arrangements in their home country in this regard.

Please also review the country specific pages.

These examples should be checked for best fit in the investor's particular tax domicile as noted above and also to align with the investor's optimal costs.

Selection of suggested funds for accumulating portfolios
Name
ISIN, base currency and tracking indices
Description and comments TER Exchanges Trading
currency
Ticker
Global government bonds
Xtrackers II Global Govt Bd ETF EUR Hedged Acc
LU0378818131 Euro
Tracking FTSE World Government Bond Index – Developed Markets
World developed Govt bond
hedged (€)[note 1]
0.25% Xetra EUR DBZB
iShares Global Govt Bond UCITS ETF $ Hedged Acc
IE00BK7Y2P34 USD
Tracking FTSE G7 Government Bond Index
World developed Govt bond
hedged ($)
0.25% Euronext USD SGLU
Global aggregate bonds
iShares Global Aggregate Bd ETF EUR Hedged Acc
IE00BDBRDM35 USD
Tracking the Bloomberg Barclays Global Aggregate Bond Index
Global aggregate
hedged (€)[note 1]
0.10% London, Swiss EUR AGGH
Xetra EUR EUNA
Vanguard Global Aggregate Bd ETF EUR Hedged Acc
IE00BG47KH54 USD
(This fund was launched on 18 June 2019. Performance data will be available after one year.)
Tracking the Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index Hedged
Global aggregate
hedged (€)[note 1]
0.10% Xetra EUR VAGF
Stocks
iShares Core MSCI World ETF USD Acc
IE00B4L5Y983 USD
Tracking the MSCI World Index
Global, developed markets
Large+Mid cap
0.20% London USD IWDA
Xetra EUR EUNL
Milan EUR SWDA
Euronext EUR IWDA
London GBP SWDA
Swiss USD SWDA
SPDR MSCI World UCITS ETF USD Acc
IE00BFY0GT14
Tracking the MSCI World index
Global, developed markets
Large+Mid cap
0.12% Deutsche Boerse EUR SPPW
Borsa Italiano EUR SWRD
Euronext EUR SWRD
London GBP SWLD
London USD SWRD
Vanguard FTSE All-World UCITS ETF USD Acc
IE00BK5BQT80
Tracking the FTSE All-World Index
Global, developed and emerging markets
Large+Mid cap
0.25% Deutsche Boerse EUR VWCE
London GBP VWRP
London USD VWRA
Emerging markets
iShares Core MSCI EM IMI ETF USD Acc
IE00BKM4GZ66
Tracking the MSCI Emerging Markets Investable Market Index
Emerging mkts
IMI : Large+mid+small
0.18% London, Swiss USD EIMI
Xetra EUR IS3N
Milan EUR EIMI
Euronext EUR EMIM
London GBP EMIM
Optional (world small cap)
iShares MSCI World Small Cap ETF USD Acc
IE00BF4RFH31 USD
Tracking the MSCI World Small Cap Index
MSCI World developed markets
Small Cap
0.35% London USD WSML
Xetra EUR IUSN
London GBP WLDS
Selection of suggested funds for distributing portfolios
Name
ISIN, base currency and tracking indices
Description and comments TER Exchanges Trading
currency
Ticker
Global aggregate bonds
Vanguard Global Aggregate Bd ETF EUR Hedged Dist
IE00BG47KB92 USD
Tracking the Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index Hedged
(This fund was launched on 18 June 2019. Performance data will be available after one year.)
Global aggregate
hedged (€)[note 1]
0.10% Xetra EUR VAGE
Global government bonds
iShares Global Govt Bond UCITS ETF GBP Hedged
IE00BDFK3H31 USD
Tracking the FTSE G7 Government Bond Index
World dev, govt
hedged (£)[note 2]
0.20% London GBP IGLH
Stocks
Vanguard FTSE All-World UCITS ETF
IE00B3RBWM25 USD
Tracking the MSCI ACWI NR
World dev+em
large+mid
0.25% London USD VWRD
London GBP VWRL
Euronext EUR VWRL
Xetra EUR VWRL
Swiss CHF VWRL
Chi-X CHF VWRLz

Notes

  1. 1.0 1.1 1.2 1.3 Hedging to the Euro is reasonable for investors whose future financial liabilities will be dominated by the Euro. For others, or where the local currency is pegged to the US dollar, possible alternatives are ishares AGGU, accumulating and hedged to US dollar, and AGGG, distributing and unhedged.
  2. If hedging to UK Sterling is undesirable then an alternative is IGLO, distributing and unhedged.

See also

References

  1. Enter keywords into the search field, such as "REIT", "emerging markets", or "MSCI ACWI", or use the advanced search function.
  2. For example, UK citizens should investigate whether the chosen ETF has "UK Reporting Status" or not, and French citizens should look for "Plan d'Épargne en Actions" (PEA) eligibility.

Further reading

External links