ETF Portfolio with European ETFs for 2023| Updated: |
(Disclosure: Some of the links below may be affiliate links)
In the future, Swiss investors may lose access to U.S. funds. DEGIRO already cut access to these funds. And Interactive Brokers may do the same next year. So, we need to be prepared for that eventuality. European ETFs are the alternative to U.S. ETFs.
You can also use mutual funds. It is almost identical to an Exchange Traded Fund (ETF). However, an ETF is much more flexible to invest in Europe. The main problem is that European ETFs are inferior to U.S. ETFs in many ways, as we will see in detail. Unfortunately, we may not have the choice to use them. The alternative of not investing at all would be much worse!
In this article, we go through the multiple steps of designing a new portfolio. First, you must decide the allocation of the different parts of the portfolio. Then, you need to choose between different stock market indices. Finally, you need to select the best ETF for each index. I believe it is an excellent exercise. However, it is not trivial and should not be taken lightly.
European ETFs only have disadvantages compared to U.S. ETFs.
First, European ETFs often have higher fees. The TER of European funds is almost always higher than the TER of U.S. funds. It is quite sad. For instance, Vanguard Total World ETF (VT) in the U.S. has a TER of 0.09%. Their European equivalent Vanguard FTSE All-World ETF has a TER of 0.25%. This TER is almost three times more expensive. In some cases, you will find European ETFs with reasonable fees. But this will not be possible most of the time.
Not only are their fees higher, but trading European ETFs is more costly than trading U.S. ETFs. With all the brokers I know, trading European ETFs is more expensive than trading U.S. ETFs. On Interactive Brokers, I can trade a U.S. ETF for less than 50 cents. But it cost me at least ten times more to trade a Swiss ETF. That is pretty terrible!
Another problem is that European ETFs are much smaller than their U.S. equivalent. A smaller fund means a larger bid/ask spread. It also means lower liquidity due to the lower trading volume. There is also a small risk that a fund that is too small gets closed. And finally, a fund that is too small cannot replicate the index as well as a bigger fund.
One big problem that many people do not consider is the difference in dividend taxes for many European investors. I did not research all the European countries. But this is true for Swiss investors. You should check if the same applies to you in your country. If you invest in U.S. funds, 30% of the dividends will be taxed.
However, you can reclaim 15% of the taxes via a W8BEN-E form. And some brokers, such as Interactive Brokers, will do that for you directly. And you can also account for the remaining 15% in your tax declaration. If you use Swiss funds, you will be taxed at 35% of the dividends. And there will not be a way to get it back! It is more important than the TER of the fund!
If you only have access to European ETFs, the best is to use funds based in Ireland. In that case, you will be able to reclaim 15% of the dividends. But you will not be able to reclaim the 15% withheld by the U.S. taxes.
If you want more details, I have an entire article about U.S. ETFs.
An example of ETF Portfolio
For a reference, let’s take a simple ETF portfolio I used in the past:
- 20% Swiss Stocks: iShares Core SPI ETF (CHSPI): A TER of 0.10%.
- 10% U.S. Stocks: Vanguard S&P 500 ETF (VOO): A TER of 0.04%. This fund has about 103 billion CHF.
- 70% World Stocks: Vanguard Total World ETF (VT): A TER of 0.09%. This fund has about 12.71 billion CHF of Assets Under Management (AUM).
The average TER of this portfolio is 0.087%. It may not be perfect, but I like this portfolio.
If we did not have access to U.S. funds, we would need to find two new funds for the U.S. stocks and the World Stocks. For this exercise, we will keep the same portfolio. There is no need to choose different stock market indexes. However, for each index, we need to choose a fund that follows it.
S&P 500 ETF
Let’s start by replacing the S&P 500 ETF with a European ETF. There are quite a few options available to us (you can search on justETF, for instance). There are three options that I would consider for this ETF:
- Invesco S&P 500 UCITS ETF: A TER of 0.05% and AUM of 4.5B
- iShares Core S&P 500 UCITS ETF: A TER of 0.07% and AUM of 8B.
- Vanguard S&P 500 UCITS ETF: A TER of 0.07% and AUM of 22B.
Given these choices, I would take the Vanguard fund. On the one hand, it has a slightly higher TER than Invesco. But it is five times bigger. And I like Vanguard Philosophy.
European ETF Portfolio with Total World ETF
For the world ETF, there are two indices that we can consider: The MSCI World index and the FTSE All-World index. Here are some interesting European ETFs following these two indexes:
- HSBC MSCI World UCITS ETF: A TER of 0.15% and 1.6B of assets.
- Invesco MSCI World UCITS ETF: A TER of 0.19% and 711M of assets.
- Vanguard FTSE All-World UCITS ETF: A TER of 0.22% and AUM of 3.5B.
- iShares MSCI World UCITS ETF (Dist): A TER of 0.50% and 5B of assets.
Honestly, I do not like any of these options. The first two funds are too small, and the last two are too expensive. European options for World ETF are pretty weak. But that is the way it is. If I had to choose, I would take the HSBC fund. But to be honest, the Vanguard is also interesting, although a little expensive.
I try to only invest in distributing funds. It has several advantages when you are retiring. However, if you are considering investing in accumulating funds, you can consider the iShares MSCI World UCITS ETF (Acc). It has a TER of 0.20% and a considerable AUM of 17B dollars. This iShares ETF is a good fund if you want to invest in accumulating funds. It is still more expensive than the HSBC fund. But it is much larger.
That would give an updated portfolio with 0.129% TER. The difference is not so bad, but it is still a significant increase of about 30% of fees. And the quality of the ETFs is quite inferior. And, of course, we would lose 15% of the U.S. dividends.
Breaking down the world ETF
Since the European ETFs for world indices are not great, we can try to replicate the performance of the World index by using several ETFs. Here is the composition of the Vanguard World ETF (VT):
- North America: 58.40%
- Europe: 18.60%
- Pacific: 13.30%
- Emerging Markets: 9.40%
- Middle East: 0.20%
- Other: 0.10%
I think we can safely ignore the last two regions and still have a good representation of the entire market. If I were to replicate the performance of the world ETF, I would use the following percentages:
- United States: 60%
- Europe: 15%
- Pacific: 15%
- Emerging Markets: 10%
But the World ETF is only 70% of my portfolio. If we take this into account, I think I would go with:
- Swiss Stocks: 20%
- U.S. Stocks: 50%
- Pacific Stocks: 10%
- Europe Stocks: 10%
- Emerging Markets Stocks: 10%
You could also go 5% of Emerging Markets or even nothing. But that would probably be too much optimization already.
Now that we have our new allocation, we need to find European ETFs for these regions. We already have an ETF for the first two regions. We need one for the three remaining regions: Pacific, Europe, and Emerging Markets.
Note that this is meant as an exercise. I do not recommend going with a complicated portfolio. Having fewer funds makes it simple to invest.
Let’s start with stocks from the Pacific region.
A few indices are covering the Pacific. What is interesting is that Japan is out of these indices. Since the big collapse of the Japanese market around 1986, it has been excluded from many indices. I can live without the Japanese stock market in my portfolio. If you cannot, you can use a Japan index as well as a Pacific index. Therefore, we can go with the MSCI Pacific ex-Japan index.
There are a few European ETFs option for this index:
- iShares Core MSCI Pacific ex-Japan UCITS ETF (Acc): A TER of 0.20% and 1.6B of managed assets.
- UBS ETF (LU) MSCI Pacific (ex-Japan) UCITS ETF (USD) A-dis: A TER of 0.30% and 175 million CHF managed.
- HSBC MSCI Pacific ex Japan UCITS ETF USD: A TER of 0.40% and 36 million AUM.
Once again, the choice is not great. Usually, I would take a fund that distributes dividends instead of accumulating them. But here, I would not pay the premium. Moreover, the last two funds are too small. And the last one is too expensive. So, I would personally go with the iShares fund for my 10% Pacific stocks.
Now, we need a European ETF for the European region.
Quite a few indices are covering this region. The first index we can take a look at is the FTSE Developed Europe index. Another one is the MSCI Europe index. Both these indexes only cover large-cap and mid-cap companies. A very popular index is the STOXX Europe 600 (or Euro Stoxx 600). It is a bit special since it contains 200 large-cap companies, 200 mid-cap companies, and 200 small-cap companies. I think it is an interesting index as well.
There are other indexes, for instance, the MSCI EMU. But in my opinion, the indices mentioned before are the best representatives of European companies’ performance. So, let’s see the best European ETFs we can find with these indexes:
- iShares Core MSCI Europe UCITS ETF: 5.1B of AUM and a TER of 0.12%.
- Vanguard FTSE Developed Europe UCITS ETF: 1.8B of AUM and a TER of 0.12%
- Xtrackers MSCI EMU Index UCITS ETF 1D: 2.4B of AUM and a TER of 0.12%.
- Amundi STOXX Europe 600 UCITS ETF: 435M of AUM and a TER of 0.18%.
- Invesco MSCI Europe UCITS ETF: 529M of assets and a TER of 0.19%
- Invesco STOXX Europe 600 UCITS ETF: 279M of assets and a TER of 0.19%.
Given these choices, I would go with the iShares Core ETF. It is large enough, and the TER is quite good. Moreover, I prefer the MSCI Europe index to the FTSE Developed Europe index. But again, these are personal reasons. You can choose another ETF or another index!
Emerging Markets ETF
The last ETF we have to choose is an ETF for the Emerging Markets.
There are two leading indices for these markets: The MSCI Emerging Markets and the FTSE Emerging Markets. I do not have a preference for one or the other.
Let’s look at the best European ETFs for these two indices:
- iShares MSCI Emerging Markets UCITS ETF (Dist): 2.3B CHF of AUM and a TER of 0.18%
- Amundi MSCI Emerging Markets UCITS ETF (Acc): 3.8B CHF of AUM and a TER of 0.20%.
- Xtrackers MSCI Emerging Markets UCITS ETF 1C (Acc): 1B of assets and a TER of 0.20%.
- UBS ETF (LU) MSCI Emerging Markets UCITS ETF (Dist): 1.3B and a TER of 0.23%.
- Vanguard FTSE Emerging Markets UCITS ETF (Dist): 1.8B CHF of AUM and a TER of 0.25%.
- HSBC MSCI Emerging Markets UCITS ETF USD: 2.5B CHF of assets and a TER of 0.40%.
In this case, I would go with the iShares MSCI Emerging Markets UCITS ETF. It is a distributing ETF with a large size and a low TER.
European ETF Portfolio with multiple ETFs
Finally, we are done! We have chosen a portfolio, chosen the stock market indices, and chosen the ETFs. Here is the final portfolio:
- Swiss Stocks: 20%: iShares Core SPI ETF (CHSPI): TER of 0.10%.
- U.S. Stocks: 50%: Vanguard S&P 500 UCITS ETF: TER of 0.07%.
- Pacific Stocks: 10%: iShares Core MSCI Pacific ex-Japan UCITS ETF (Acc): TER of 0.20%.
- Europe Stocks: 10%: iShares Core MSCI Europe UCITS ETF: TER of 0.12%.
- Emerging Markets Stocks: 10%: iShares Emerging Markets UCITS ETF (Dist): TER of 0.18%.
This portfolio gives us a global TER of 0.105% for the entire portfolio. This portfolio is only slightly better than the version with the world ETF. It only has 0.024% fewer fees. And instead of merely having three funds, you have five funds.
I do not think this is better than the portfolio with the world ETF, honestly. But if you want to minimize fees, this is the way to go. And I believe that these funds are a bit better together than the HSBC world fund. But it is up to you to decide if you prefer lower fees or a simpler portfolio.
As you can see, it is not an easy thing to design an entire ETF portfolio from scratch. First, you must decide the allocation of the different regions or even investing instruments (bonds and stocks, for instance). Then, you need to find the stock market index for each of these assets that you want to invest in. Finally, you will need to find the best ETF for each index.
And this exercise gets more complicated when you are limited to use European ETFs. As we saw before, these European ETFs are inferior to U.S. ETFs.
Ultimately, we end up with a portfolio with inferior funds with about a 30% fee increase. And this is not counting the significantly higher trading fees. Finally, we will pay much more taxes on the dividends since we cannot reclaim the U.S. dividends anymore. Overall, we are probably looking at twice the fees of the original portfolio.
Unfortunately, we may not have the choice to do the switch. If Interactive Brokers has to comply with the new laws to Swiss investors, we will be stuck with European ETFs. Therefore, it is still better to be prepared for this eventuality.
Now, should we stop investing? No! Investing with European ETFs is much better than not investing at all. And it is not that bad. Even in Switzerland, some people prefer investing with European ETFs. It is not optimal, but it works!
What would your portfolio look like without U.S. funds? Would you do it differently?
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96 thoughts on “ETF Portfolio with European ETFs for 2023”
I have a question:
I see that the same european ETF is traded in different stock exchange. For example I want to buy a world ISHRS CORE MSCI WORLD USD ACC and I see I can buy in multiple stock exchange?
Do you have suggestion where to buy?
I normally look a the volume trade.
What is this Xetra?
Thank you very much!!
I usually prefer the main stock exchange for each ETF. That is either the one closer to the emitter or the one with the highest volume of trade.
Xetra is the German stock exchange.
Thanks for the article!
What’s the latest on your first statement that Interactive Brokers might cut us access to US funds next year? Where can I learn more about this?
No update on that. It won’t happen in 2022 but we don’t know about the future. The current consensus is that nothing will change since IB is an execution-only broker.
Hello, Thank you for the information in your site. Im interested in investing 100 K CHF for a period of 10 plus years, and in a way that I don’t have to manage the investment. May I request:
1. What do you think of Saxo Bank’s managed portfolio, Saxo Select-Black Rock, Aggressive strategy?
2. Your views on iShares SMIM ETF (CH)
3.Your views on iShares Core SPI ETF (CH)
4. Is there a CHF denominated ETF with only small and mid cap Swiss companies?
The above would be options in addition to Vanguard S&P 500 ETF (VOO) where I would add 25% of my funds. The cost of the portfolio is less on a concern for me as Im right now with a savings account with a negative Rate of interest.
Thank you so much in advance
1) They say keep fees low and then state a 1.05% fee, I don’t think anything good about them. Use VOO instead.
2) I have an article about Swiss indexes.
3) It’s the ETF I use
4) I have an article about Swiss indexes.
Thank you so much for the link to the clear article. And its a great infographic :-)
I will go with VOO and iShares Core SPI ETF.
Good luck with your investing!
Dear Poor Swiss,
I tried to find an update on the “Access to US ETFs for Swiss-residents” here on your blog, but I couldn’t.
Hence my direct question here.
Given that we are now in 2022, is there any official update on the matter?
The only recent info I found (not official) is the following:
Thanks in advance !!!!
Unfortunately, not. Some part of the regulations was delayed until next year. But apparently, this does not concern IB.
Currently, the consensus is that IB will still be able to give us access given that it’s an execution-only broker.
Hello Mr. Poor Swiss!
Thank you for your posts, with their help I built my portfolio with European ETFs for S&P500, World and EM.
I’m thinking now to focus mostly on S&P500 due to its great performance, but also to allocate 10-20 % to the rest of the world.
Since all world ETFs cover S&P500 stocks once again, I’m looking for a kind of “all World ex-US” ETF. Would you recommend any?
Must be Europe based, since I’m an EU resident.
I am glad you were able to build your portfolio!
I would recommend that you choose a World ETF and adjust your S&P500 allocation accordingly, this is more simple.
Otherwise, you can look at the ishares msci world ex us ETF, it looks okay although a little expensive.
Hi Mr poor swiss,
How do you know if an ETF is a European one? Is it possible to invest in European ETF’s even if we are not planning on staying longterm in Europe? Are there, for example, worldwide ETF’s?
You need to look at the domicile of the ETF. This is something you can find in the factsheets of these ETFs. European ETFs are generally called UCITS ETF to show their compliance.
Normally, you should be able to buy these ETFs from most countries, but there could be some regulations that make this impossible, I do not know for each country.
There is no worldwide ETFs, but there are ETFs in each country. For instance, US ETFs should be available from most of the world, but they were recently stopped in European countries, unfortunately.
Unless you already know in which country you are going to go to, I would recommend using the best available local ETFs: in Switzerland, it’s US ETFs in general.
Great article! I hope we don’t lose access to the U. S. ETFs but it doesn’t hurt to be prepared.
What do you think about the SPDR MSCI World UCITS ETF? It has a TER of 0.12% which is cheaper then the HBSC ETF.
As far as accumulating ETFs go, this one is quite. But I feel it’s a bit small for a World ETF. I would rather go with the iShares Core MSCI World instead.