The XEU ETF offers exposure to a broadly diversified portfolio of European stocks. It tracks the performance of the MSCI Europe Investable Market Index minus costs.
The ETF maps more than 1,300 companies. The index covers ~ 99% of the free float adjusted market capitalization of the European markets.
The current main investment strategy of XEU is the sampling strategy.
Benefits of the iShares XEU ETF
- It seeks long-term capital growth.
- It offers exposure to a wide range of large, mid and small cap stocks from 15 developed markets in Europe.
- It ensures international diversification.
Disadvantages of iShares XEU ETF
- Diversification limited to Europe only.
- It’s a relatively smaller ETF with only $ 300 million in assets.
- Expensive with a MER of 0.28% compared to the VGK ETF.
- XEU is not secured against CAD.
iShares XEU ETF facts
- Starting time: April 15, 2014
- Benchmark: MSCI Europe Investable Market Index
- Net worth: $ 301 million
- MER: 0.28%
- 12 months trailing yield: 1.90%
- Distribution income: 1.72%
- Dividend plan: Half-yearly
iShares XEU MER – management expense ratio
The XEU management fee is 0.25% and the MER is 0.28%. Your other options are BMO’s ZEQ ETF and Vanguard’s VGK ETF with MER of 0.45% and 0.08%, respectively.
The MER is what Blackrock needs to run the fund. It’s much cheaper than mutual funds and, in some cases, cheaper than investing on your own.
Mutual funds can charge over 2% and rob you of your returns. It’s time to ditch your mutual funds and switch to ETFs as soon as possible. Many brokers like Questrade offer free ETFs.
iShares XEU performance
The annual return of the iShares XEU ETF has been 7.02% since inception. It outperformed the broader S&P500 index.
Then why risk Europe …
The annual return of the iShares XEU ETF has been 7.02% since inception. There is a big difference compared to my annual ROR of 14.40%. Just take a look at the S&P500 index for a different perspective.
Take your TFSA account as an example. The rules are the same for everyone and I mean everyone. Ultimately, growth is a factor in your investment performance, provided you meet your TFSA contribution limit each year. The annual performance of an ETF is important as you can see from the 20+ year growth below.
|1||2009||5,000||5,000||5,250||5,500||Not pursued||Not started|
|2||2010||5,000||10,000||10,762||11,550||Not pursued||Not started|
|3||2011||5,000||15,000||16,550||18.205||Not pursued||Not started|
|4th||2012||5,000||20,000||22,628||25,525||Not pursued||Not started|
|5||2013||5,500||25,500||29,534||34,128||$ 41,742||Not started|
|6th||2014||5,500||31,000||36,786||43,590||$ 52,820||Not started|
|7th||2015||10,000||41,000||49.125||58.949||$ 56,307||Not started|
|8th||2016||5,500||46,500||57,356||70,984||$ 70,200||Not started|
|9||2017||5,500||52,000||65,999||84.034||$ 78,900||$ 13,308|
|10||2018||5,500||57,500||75,074||98,487||$ 96,937||$ 58,818|
iShares XEU ETF holdings
XEU ETF is a great way to invest in the best European companies.
Nestlé is the most significant position with a weighting of 2.6%, followed by ASML Holding with an allocation of ~ 2%. Roche Holding is its third largest holding and represents 1.8% of iShares XEU’s fund allocation.
XEU’s allocation is not heavily weighted relative to its top 10 holdings. The top 10 holdings also include Europe’s leading pharmaceutical companies such as Roche Holding, Novartis and AstraZeneca, as well as consumer-centric companies such as Nestle, Unilever and LVMH, making it a demand-driven portfolio.
European stocks such as Nestle SA and SAP are among the largest and best-known companies in the world.
iShares XEU ETF sector allocation
The ETF leans towards the financial sector with ~ 17% of the asset allocation to this sector. Overall, 65% of the ETF has exposure to financial, industrial, healthcare, consumer staples and underlyings.
However, these assignments can change from time to time. Energy ranks low on this fund’s allocation list when compared to other popular Canadian ETFs such as XDV, XIU, XIC, etc., while healthcare, consumer discretionary and consumer staples are high on the list.
Why hold iShares XEU ETF?
If you look at the sectors, XEU tends to cover the opposite of what Canadian ETFs cover.
If you like XIU, XEU might be an interesting option to maintain similar performance but expose your money to a different type of business and a much larger economy.
If you want the dividends, it’s not clear you’re getting the same growth, but the best banks and the best utility stocks will bring you more income.