How to Invest in European Stocks

Many investors are critical about Europe’s economic future, but that does not mean there is no demand for European stocks. This moneyland.ch guide explains how to invest in the European stock market using stocks and ETFs.

What makes European stocks appealing for investors?

In many global stock indexes, US stocks are very strongly represented compared to stocks from other countries. The weighting of US stocks in most well-known global indexes is more than 60 percent. By comparison, European companies are largely underrepresented. Investments in European stocks can be an effective way to diversify and iron out imbalances in your portfolio.

European indexes track numerous established, well-known companies. Compared to the US stock market, the European stock market is not nearly as dominated by hype and momentum stocks. Some investors see that as an advantage. Many European stocks are valued comparatively low and are less prone to strong fluctuations.

Are there any pan-European stock indexes?

In addition to national stock market indexes, there are also a number of multi-national stock indexes with a focus on European stocks. The best-known indexes are the Euro Stoxx 50, the Stoxx Europe 50, and the Stoxx Europe 600. These indexes are published by Zug-based investment services provider Stoxx, that in turn is a subsidiary of Deutschen Börse AG, which publishes the main German stock index DAX.

Table 1: Overview of pan-European stock indexes

Source: Index publishers. Date: October 15, 2024.

The Euro Stoxx 50 is made up of the 50 biggest publicly-traded companies in the Eurozone – EU countries in which the euro is the official currency. The selection and weighting of stocks in the index is based on free float market capitalization. The Euro Stoxx 50 is published in both price index and performance index versions. The price index is the better known of these, and references to the Euro Stoxx 50 generally refer to that version, unless the performance version is specified.

Table 2: The 10 most heavily-weighted stocks in the Euro Stoxx 50 and the Euro Stoxx 600 indexes

Source: Index publisher. Date: October 11, 2024.

The Stoxx Europe 50 is similar to the Euro Stoxx 50. It is also comprised of 50 different stocks, but also includes countries outside of the Eurozone – including Switzerland. The Stoxx Europe 600 index variant is numerically much more diversified, with 600 stocks included.

Table 3: The 10 most heavily-weighted stocks in the Stoxx Europe 50 index

Source: Index publisher. Date: October 11, 2024.

The MSCI Europe, which tracks 415 stocks from 15 countries (as per October 2024), is also diversified. The makeup of this index published by US financial services provider MSCI is similar to that of the Stoxx Europe 600.

Which ETFs can I use to invest in pan-European stock market indexes?

There are many different exchange-traded funds (ETFs) that you can use to invest in the indexes explained above (see Table 4). Buying shares in these funds, most of which are passively managed, lets you invest in all of the stocks in an index without having to buy shares in each stock individually.

Table 4: The cheapest ETFs for investing in pan-European stock indexes  

Source: Fund managers. Date: October 11, 2024.

Which fees should I pay attention to when investing with ETFs?

All you need in order to invest in ETFs is a stock brokerage account. You can buy and sell ETF shares at any time during trading hours, just as you would with stocks. These are the possible fees and costs you should pay attention to: The fees charged by the ETF itself, called the total expense ratio (TER); the custody fees and brokerage fees charged by your stock broker; the stamp duties levied by the Swiss federal government.

What should I consider from a tax perspective?

When choosing an ETF, it is important to look at where the fund is headquartered. For investors in Switzerland, ETFs domiciled in Ireland or Luxembourg are more favorable, from a tax perspective. You can find detailed information about what to consider in the checklist for choosing an ETF.

What are the risks and disadvantages of European ETFs?

As a general rule, investing in stocks always comes with risk. Profits are never guaranteed, and losses can never be ruled out. That is particularly true if you invest in individual stocks. Having a diversified stock portfolio that includes numerous stocks from many different regions and sectors – like those offered by ETFs, for example – substantially reduces your risk of losing money.

There are also a number of additional risks that are specific to European stocks:

• Indexes are dominated by just a few European countries: When looking at pan-European ETFs, it becomes clear that indexes are dominated by the United Kingdom and France. Switzerland and Germany are also well represented. Other countries have much smaller shares in pan-European stock indexes – if they are included at all. If you always want to invest in European countries like Austria or the Czeck Republic, for example, you will generally have to invest separately in ETF based on national indexes from those countries, when available.
• Future industries are sparse: Europe lags behind in many sectors that are expected to see high growth in the future. Examples include the tech sector, and companies in the field of artificial intelligence. The weightings of tech stocks in European indexes are relatively low. Tech stocks make up just 7.8 percent of the Stoxx Europe 600 index. By comparison, the share of tech stock in the US stock index S&P 500 is over 30 percent (as per October 2024).
• Currency exchange: With the exception of stocks from Switzerland and Liechtenstein, European stocks are not denominated in Swiss francs. Most are denominated in euros. A depreciation of the denominating currency against the franc can negatively impact performance for you as a Swiss investor. The reverse scenario is also possible.

How profitable are European stocks?

A performance comparison shows that in the more recent past, the returns of European stocks have been somewhat below average. Their performance was generally lower than that of the main US stock market index S&P 500 and the global index MSCI World.

Table 5: ETF performance comparison for the Stoxx Europe 600, the MSCI World, and the S&P 500

Source: Justetf.com. Performance in CHF, accounting for dividends. Dates used for performance comparison: October 15, 2014; October 15, 2019, and October 15, 2024.

Important: Historical data is not a definite indicator of future returns. Although past returns can be used as a reference point, there is no way to predict how the value of securities like stocks and ETFs will develop.

Notice: This article is provided for informational purposes only, and should not be considered investment advice. The publishers do not accept any liability in connection with this article.

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