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ETF Portfolio with European ETFs for 2024

Baptiste Wicht | Updated: |

(Disclosure: Some of the links below may be affiliate links)

While Swiss investors can invest in US ETFs, some people are forced to use the inferior European ETFs. For instance, users of DEGIRO and several other brokers cannot use US ETFs. Therefore, they must know how to build a portfolio with European 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

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 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 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 W-8BEN 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 can reclaim 15% of the dividends. But you cannot 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 an ETF Portfolio

For reference, here is 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

We should 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, 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% in 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):

  1. North America: 58.40%
  2. Europe: 18.60%
  3. Pacific: 13.30%
  4. Emerging Markets: 9.40%
  5. Middle East: 0.20%
  6. Other: 0.10%

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:

  1. United States: 60%
  2. Europe: 15%
  3. Pacific: 15%
  4. 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 must find European ETFs for these regions. We already have an ETF for the first two regions. We need one for the three remaining regions: the 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.

Pacific ETF

We can start with stocks from the Pacific region.

A few indices cover 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.

Europe ETF

We need a Europe ETF
We need a Europe ETF

Now, we need a European ETF for the European region.

Quite a few indices cover this region. The first index we can 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. Here are 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 must 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.

Here are 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.

This portfolio is not better than the portfolio with the world ETF. 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.

Conclusion

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 asset 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 using 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 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.

If you still have access to US ETFs, I am not recommending you use European ETFs. This article is meant for people that do not have access to US ETFs.

If we lose access to US ETFs, 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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Baptiste Wicht started thepoorswiss.com in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. This blog is relating his story and findings. Since 2019, he has been saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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128 thoughts on “ETF Portfolio with European ETFs for 2024”

  1. Hi Baptiste,
    Do I get it right that investing in a US-domiciled ETF (traded in any currency on any exchange) would be more beneficial for tax reasons comparing to investing in an equivalent ETF, traded in CHF on SIX (so no currency conversion) but domiciled elsewhere (i.e. Ireland)?
    Ignoring TER and fees or assuming they are the same. I.e. the benefit of reclaiming the full withheld tax beats the benefit of avoiding conversion.

    1. Hi

      In the long-term and for a serious portfolio, yes, US ETFs beat any other ETFs for Swiss investors.
      The first part of my phrase is to nuance. Indeed, you can only claim the withholding starting at 100 CHF, so you need a considerable portfolio before you can claim. If you do not plan to reach this point, IE ETFs for instance will be fine.
      Then, it will depend on each broker to see where is the breaking point since some brokers are more expensive than others for currency conversions.

  2. Hi, I am a noobie in ETF trading, based in Switzerland, and I am still trying to figure how my portfolio will be.
    Currently I have 83% VWCE and 15% SMH. And this leads to my question. Can I hold SMH ETF (the one based in the US) or should I opt for an European based SMH ETF?

    I apologize if it’s a silly question but I’ve been trying to search for it but only found contradictory information.

    Thank you.
    Gonçalo

      1. Thank you for your reply Baptiste.
        Currently I am using IBRK. However, even tho I am currently in Switzerland, I am not sure what the future might hold, and I may move to my home country (Portugal) within the next few years. Additionally, I choose VWCE (even tho it’s TER is 3 times as higher) because I wanted to have an accumulating ETF and VT is distributing, or am I wrong?

        Keep the good work. Thank you, been learning a lot.

        Best,
        Gonçalo

      2. Are you sure an accumulating ETF is worth 3xTER?
        VT is indeed distributing.
        You could use US ETFs while in Switzerland and then switch to EU ETFs once back in Portugal, but of course, it’s up to you.

      3. Hi Baptiste, earlier on this thread, you’ve mentioned that we in CH can invest on US ETFs via IKBR… even not having a certain level o wealth. I just want to clarify that this info is NOT accurate and IKBR won’t let you do so. I’ve got an account with IKBR, opened in March this year. Regards

      4. Your info is NOT accurate. You CAN still buy US ETFs with IB as a CH resident, I did that 3 days ago.
        If you can’t do that through your account, you need to contact the support to let me know something is wrong.

      5. Dear Baptiste,

        What I meant was that I am using VWCE, even tho its expensive ratio is 3x higher than the one for VT, for example (0.22% vs 0.07%), which of course is a disadvantage of VWCE…however, since I want acc. ETF, I guess it’s a “small” price to pay.

        Regarding the comment in between, I can also say that IBKR allows you to buy US-based ETF from Switzerland…I bought SMH earlier this week as well, thus my first question.

        Thank you for your advice.

        Best,
        Gonçalo

      6. Yes, I understood well. But I was questioning whether it was really worth it :) Is the accumulating ETF really worth 0.15% TER per year? What are the benefits of an accumulating ETF?

      7. Hi Baptiste, I’ve discussed with IKBR’s support 2 weeks ago… they’ve declined my request. How could you help me on this topic?

      8. Unfortunately, there is not much else you can do but insist. I have heard multiple times about this issue and every time this was resolved through the support even though it sometimes required a few back-and-forth.

      9. Dear Baptist,

        I did not read this post before purchasing my Emerging Market ETF and so I opted for a different one…I bought the Vanguard FTSE Emerging Markets UCITS ETF Acc (VFEA) ETF and after reading a bit more I started to think if It was the right choice. I intend to keep this ETF for the long run (15-20 years). The main concern I have is its low trading volume and relatively smaller fund size.
        In your experience, should I be concerned about these two aspects or can I expect the fund to increase both in size and trading volume?
        In other words, does this ETF “carry” a higher risk of not being easy to sell in the future?

        Thank you for your time.

        Best,
        Gonçalo

      10. Hi Goncalo,

        I don’t think there is a high risk with this ETF. You could get a higher spread when selling and there is the small risk that a tiny fund gets closed at some point. If it gets closed, you will not lose money, but you will be forced to sell. As long as you buy directly another ETF, it’s fine, but if you are not reactive, you may be out of the market for some time.
        However, it’s true that it’s among the small Emerging Markets ETF. It manages about 400m while the biggest one manages 18B, this is a significant difference.
        I would personally use “iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc)” instead, and you would even save a little bit in TER.

  3. Hi Baptiste,

    What do you think of the “new” Invesco FTSE All World UCITS ETF Acc (FWRA)? Much lower volumes than VWRA but also slightly lower TER and can be traded on SIX to avoid currency conversion. Is it an option you would consider?

    Thank you!

    1. Hi

      For me, it’s just too small at this point (less than 200m).
      Keep in mind that by avoiding currency conversion by using SIX, you are only avoiding the fees, not the risk.

  4. Hi Baptiste,

    My current portfolio is made up 90pc of an S&P ETF and 10pc of a SMI ETF. Given the excellent historical results of the S&P – with regard to the MSCI World ETF – is there any sense for me to sell some of these and purchase MSCI instead?
    Thanks
    Max

    1. Hi Max

      It all depends on you. S&P500 is concentrated only one country (the biggest in the stock market, at least). A world etf would invest in each country.
      Having some world stocks would make you less susceptible to a crash in the US. If it’s major global recession, it wont’ make much difference, but for a local recession (new US civil war for instance), world stocks will do better than US stocks.
      Since the US is the largest economy, other global stocks are quite dependent on them, that’s why some people invest only in US stocks (and also because of the high historical performance).

  5. Hi, some Swiss banks do not allow trading in ETF domiciled in US (e.g. Vanguard Total Bond Market – BND). Does Swiss regulation prohibit trading in such ETF’s, much like in other European countries?
    Thanks

    1. Hi Paolo

      Indeed, some Swiss banks prevent this.
      However, it’s legal in Switzerland because we are not part of the European Union. Banks are just either too careful or too greeedy (European funds have more fees).

      1. Hi everyone, I was planning to migrate my account from CornerTrader to Interactive Brokers (IB), due to investment restriction for non-professional clients to invest on ETFs domiciled in US. However, when speaking with an agent from IB today (Dec 21, 2023) I’ve been informed that IB is actually following the very same definitions, that means, unless you possess 500k and can demonstrate that you’re professional investor you won’t be allowed to buy US based ETFs. Hope this update helps you and if you have different information from IB, I’ll be glad to hear. Regards!

      2. Hi MT,

        That’s wrong. IB does not apply this restriction to Swiss customers because it does not apply to them.
        However, several agents from IB have mistakenly reported that many times already because they ignore the specifics of Switzerland.
        I have not heard of anything changing this month.

  6. Hi. If I want to invest into some kind of World ETF. Is it better to choose one in $ or in EUR? Would it make sense to invest half in $ and half in EUR? My home currency is neither anyways, so I am not sure if this would be some kind of protection from currency volatility or it doesn’t make much sense?

    1. If your base currency is neither USD nor EUR (I think it’s NOK for you), it makes very little difference. US stocks are always price in USD, so incur a currency risk regardless of the trading currency. And european stocks are traded in EUR, so, currency risk again.
      So, I don’t think it matters much either way and probably not worth having both.

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