EU investing

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Euflag.jpg This article 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.[note 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.[note 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. Depending on your country of residence, there may be other tax-related problems with US domiciled funds, for example US estate tax on holdings above just $60,000. In short, US tax policy can make US domiciled funds unattractive to EU investors.

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
Börse Stuttgart 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. The UK left the EU in January 2020, but created its own 'UK PRIIPs' regime that is fully aligned with the EU PRIIPs, so PRIIPs restrictions continue to apply in the UK.[1]

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 Global Government Bond UCITS ETF 5C Acc
ISIN LU0908508731 EUR
Tracking FTSE World Government Bond Developed Market Index
World developed government bond
unhedged
0.2% Xetra EUR XG7S
London GBP XG7S
USD XGGB
Swiss EUR XG7S
Italian EUR XG7S
iShares Global Government Bond UCITS USD ETF Acc
ISIN IE00BYZ28V50 USD
Tracking an index composed of local currency bonds issued by governments of developed countries
World developed government bond
unhedged
0.2% London USD IGLA
Swiss USD IGLA
Xtrackers II Global Government Bond ETF EUR Hedged Acc
ISIN LU0378818131 EUR
Tracking FTSE World Government Bond Index – Developed Markets
World developed government bond
hedged (€)[note 3]
0.25% Xetra EUR DBZB
iShares Global Government Bond UCITS ETF $ Hedged Acc
ISIN IE00BK7Y2P34 USD
Tracking FTSE G7 Government Bond Index
World developed government bond
hedged ($)[note 3]
0.25% Euronext USD SGLU
Global aggregate bonds
iShares Global Aggregate Bond ETF USD Hedged Acc
ISIN IE00BZ043R46 USD
Tracking the Bloomberg Barclays Global Aggregate Bond Index
Global aggregate
hedged (US$)
0.10% London USD AGGU
iShares Global Aggregate Bond ETF EUR Hedged Acc
ISIN IE00BDBRDM35 EUR
Tracking the Bloomberg Barclays Global Aggregate Bond Index
Global aggregate
hedged (€)[note 3]
0.10% London EUR AGGH
Swiss EUR AGGH
Xetra EUR EUNA
Vanguard Global Aggregate Bond ETF USD Hedged Acc
ISIN IE00BG47KJ78 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 in USD
Global aggregate
hedged (US$)
0.10% London USD VAGU
Vanguard Global Aggregate Bond ETF EUR Hedged Acc
ISIN IE00BG47KH54 EUR
(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 in Euro
Global aggregate
hedged (€)[note 3]
0.10% Xetra EUR VAGF
Stocks
iShares Core MSCI World ETF USD Acc
ISIN IE00B4L5Y983 USD
Tracking the MSCI World Index
Global, developed markets
Large cap and mid cap
0.20% London GBP SWDA
USD IWDA
Xetra EUR EUNL
Milan EUR SWDA
Euronext EUR IWDA
Swiss USD SWDA
SPDR MSCI World UCITS ETF USD Acc
ISIN IE00BFY0GT14 USD
Tracking the MSCI World index
Global, developed markets
Large cap and mid cap
0.12% Deutsche Börse EUR SPPW
Borsa Italiana EUR SWRD
Euronext EUR SWRD
London GBP SWLD
USD SWRD
Vanguard FTSE All-World UCITS ETF USD Acc
ISIN IE00BK5BQT80 USD
Tracking the FTSE All-World Index
Global, developed and emerging markets
Large cap and mid cap
0.22% Deutsche Börse EUR VWCE
London GBP VWRP
USD VWRA
iShares MSCI ACWI UCITS ETF USD Acc
ISIN IE00B6R52259 USD
Tracking the MSCI ACWI Index
Global, developed and emerging markets
Large cap
0.20% Mexico MXN ISAC
Deutsche Börse EUR IUSQ
London GBP SSAC
USD ISAC
Swiss USD SSAC
Tel Aviv ILS iSFF505
Emerging markets
iShares Core MSCI EM IMI ETF USD Acc
ISIN IE00BKM4GZ66 USD
Tracking the MSCI Emerging Markets Investable Market Index
Emerging markets
Large cap, mid cap, and small cap
0.18% London GBP EMIM
USD EIMI
Swiss USD EIMI
Xetra EUR IS3N
Milan EUR EIMI
Euronext EUR EMIM
Optional (world small cap)
iShares MSCI World Small Cap ETF USD Acc
ISIN IE00BF4RFH31 USD
Tracking the MSCI World Small Cap Index
MSCI World developed markets
Small cap
0.35% London GBP WLDS
USD WSML
Xetra EUR IUSN
Multi-asset (single fund portfolio options)[note 4]
Vanguard LifeStrategy 20% Equity ETF Acc
ISIN IE00BMVB5K07 EUR
20% by value of equity securities and 80% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V20A
Deutsche Börse EUR V20A
Milan EUR VNGA20
Vanguard LifeStrategy 40% Equity ETF Acc
ISIN IE00BMVB5M21 EUR
40% by value of equity securities and 60% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V40A
Deutsche Börse EUR V40A
Milan EUR VNGA40
Vanguard LifeStrategy 60% Equity ETF Acc
ISIN IE00BMVB5P51 EUR
60% by value of equity securities and 40% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V60A
Deutsche Börse EUR V60A
Milan EUR VNGA60
Vanguard LifeStrategy 80% Equity ETF Acc
ISIN IE00BMVB5R75 EUR
80% by value of equity securities and 20% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V80A
Deutsche Börse EUR V80A
Milan EUR VNGA80
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
iShares Core Global Aggregate Bond UCITS ETF Dist
ISIN IE00B3F81409 USD
Tracking an index composed of global investment grade bonds
Global aggregate
unhedged
0.10% London GBP AGGG
Swiss USD AGGG
Xetra EUR AGGG
Vanguard Global Aggregate Bond ETF EUR Hedged Dist
ISIN 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 3]
0.10% Xetra EUR VAGE
Global government bonds
iShares Global Government Bond UCITS USD ETF Dist
ISIN IE00B3F81K65 USD
Tracking an index composed of local currency bonds issued by governments of developed countries
World developed government bond
unhedged
0.2% Deutsche Börse EUR EUN3
London GBP SGLO
USD IGLO
Swiss CHF IGLO
iShares Global Government Bond UCITS ETF GBP Hedged
ISIN IE00BDFK3H31 USD
Tracking the FTSE G7 Government Bond Index
World developed government bond
hedged (£)[note 5]
0.20% London GBP IGLH
Stocks
Vanguard FTSE All-World UCITS ETF
ISIN IE00B3RBWM25 USD
Tracking the FTSE All-World Index
World developed and emerging markets
Large cap and mid cap
0.22% London GBP VWRL
USD VWRD
Euronext EUR VWRL
Xetra EUR VWRL
Swiss CHF VWRL
Chi-X CHF VWRLz
Multi-asset (single fund portfolio options)[note 4]
Vanguard LifeStrategy 20% Equity ETF Dist
ISIN IE00BMVB5L14 EUR
20% by value of equity securities and 80% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V20D
Deutsche Börse EUR V20D
Milan EUR VNGD20
Vanguard LifeStrategy 40% Equity ETF Dist
ISIN IE00BMVB5N38 EUR
40% by value of equity securities and 60% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V40D
Deutsche Börse EUR V40D
Milan EUR VNGD40
Vanguard LifeStrategy 60% Equity ETF Dist
ISIN IE00BMVB5Q68 EUR
60% by value of equity securities and 40% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V60D
Deutsche Börse EUR V60D
Milan EUR VNGD60
Vanguard LifeStrategy 80% Equity ETF Dist
ISIN IE00BMVB5S82 EUR
80% by value of equity securities and 20% by value of fixed income securities
hedged (€) (bonds only)
0.25% Euronext EUR V80D
Deutsche Börse EUR V80D
Milan EUR VNGD80

Notes

  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.
  3. 3.0 3.1 3.2 3.3 3.4 Hedging to the Euro or US dollar is reasonable for investors whose future financial liabilities will be dominated by or pegged to that currency. Otherwise, choosing an unhedged bond ETF will probably be more appropriate.
  4. 4.0 4.1 Hedging the bonds component to the Euro may or may not be desirable, depending on the local currency.
  5. Hedging to Sterling is reasonable for UK investors. Otherwise, choosing an unhedged ETF may be more appropriate.

See also

References

  1. "Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit)". GOV.UK. Retrieved February 1, 2020. Regulations 2019: explanatory information

Further reading

External links