Welcome to ETFs Around the World: Selfwealth's four-part series that takes a closer look at some of the most compelling regional ETFs on the market today. As global markets continue to evolve, investors have a unique opportunity to rethink their strategies and tap into high-potential growth areas outside of their home countries. In this special mini-series, we'll dive deep into ETFs that focus on Japan, India, and Europe, comparing two top-performing funds from each of these regions. In the final article, we'll zoom out to compare two leading global equity ETFs, offering a broader perspective on how international funds stack up on the global stage. 

This series isn’t about picking winners – it's about exploring new angles and considering how regional dynamics could shape your ETF portfolio as we head into 2025. Whether you're already familiar with these markets or are looking for fresh insights, we’ll help you navigate the evolving landscape of international ETFs with a new lens. 

It is important to always do your own research before making decisions to invest and that past performance is not an indicator of future performance. 

Key takeaways: 

• The iShares Europe ETF and the Vanguard FTSE Europe Shares ETF both seek to track shares from European markets, including the United Kingdom, however, VEQ is more diversified by virtue of exposure to over 1,200 holdings versus around 360 for IEU. 

• Having a longer history as a listed ETF, IEU has nearly three times the net assets that VEQ has. 

• Historical performance results are split evenly, with iShares IEU outperforming over the last three and five years, whilst Vanguard VEQ has delivered superior returns over the last 12 months and since inception. 

• Vanguard charges a lower management fee of 0.35% per annum for its fund, compared with 0.59% per annum for the iShares Europe ETF, while also paying quarterly distributions as opposed to iShares’ semi-annual payouts. 

Having previously covered ETFs focusing on Japan and India, we’re now putting the spotlight on Europe as part of the latest article in our ETFs Around the World series. 

The EU is a major economic force, with the bloc representing the second largest economy in the world by nominal GDP, and the third largest by purchasing power parity. Germany, France, and Italy are among the chief contributors to economic activity, though various multinational companies also come from a host of other countries around the region.  

The United Kingdom, whilst not part of the EU or the European Economic Area (EEA), is also one of the largest global economies. Its share market sits within the top 10 for global market capitalisation. 

For investors eyeing exposure to Europe, and the means to invest in companies from several individual share markets all at once — including the UK — the iShares Europe ETF (ASX: IEU) and the Vanguard FTSE Europe Shares ETF (ASX: VEQ) are the two most established ASX-listed funds in this space. Here is a snapshot on how the two funds stack up. 

 Fund Objective 

Starting with the iShares Europe ETF, this fund seeks to provide investors with the performance of the S&P Europe 350 Index, before fees and expenses. This benchmark index covers a diverse field, including 16 major developed European share markets, and more than 350 large capitalisation equities. 

According to the fund manager, IEU is targeted to investors who might be seeking capital growth, with a minimum investment time frame of five years, and with a medium to high risk-return profile. Furthermore, Blackrock notes that IEU can be used as a core component of one’s portfolio, or less. 

Meanwhile, the Vanguard FTSE Europe Shares ETF seeks to track the return of the FTSE Developed Europe All Cap Index, with net dividends reinvested, in Australian dollars, before taking into account fees, expenses, and tax. This fund gives investors exposure to more than 1,200 European stocks. 

In terms of suitability, Vanguard suggests the fund is appropriate for “buy and hold investors seeking long term capital growth and diversification via exposure to a diversified portfolio of European securities.” It also notes that investors in VEQ will typically have a higher risk tolerance. 

Fund Profiles  

According to the ASX’s Investment Products monthly update for October 2024, there is a notable size disparity between the two funds. 

As at October 31, 2024, IEU was the larger of the pair, with its funds under management (FUM) at $794.3 million. In contrast, the month-end FUM for VEQ was $263.3 million. The significant difference reflects the fact that the iShares Europe ETF has been trading on the ASX since October 2007 — with the first units in the fund processed even earlier, in July 2000 — whereas the Vanguard FTSE Europe Shares ETF made its ASX debut in December 2015. 

Over the course of last month, FUM growth was modest at $1.2 million for IEU, with around $10.4 million in net inflows, compared with $0.3 million growth for VEQ, and $3.7 million in net inflows. 

By trade volumes, IEU also edged out VEQ on this metric, with 4,805 trades versus 2,768 trades across all ASX trading (broker) participants through October. The average trade size for each fund was $5,312 and $3,346, respectively. Monthly liquidity was similar at 3.21% and 3.52%, respectively. 

Fund Holdings 

As noted earlier in the Fund Objective section, there is a major point of differentiation in terms of diversity and concentration of holdings for each ETF.  

Based on the most recent data for IEU and VEQ — November 26 and October 31 respectively — there were 363 individual equity holdings for the iShares ETF, in addition to cash and other instruments, while Vanguard’s ETF featured shares in 1,262 unique companies, excluding cash and futures products. 

Despite the significant difference above, the top ten holdings for each fund comprised the same names, albeit with a small difference in the order of the rankings. The weight of the top 10 holdings relative to total net assets was broadly comparable between IEU and VEQ at 21.7% and 18.4%, respectively. 

^ = as at November 26, 2024 - rounded to one decimal place 

* = as at October 31, 2024 - rounded to one decimal place 

The similarities extend to sector exposure, where weightings are also relatively equal. For both ETFs, the Financials sector is most represented among the shares that make up total net assets. 

^ = as at November 26, 2024 - rounded to one decimal place 

* = as at October 31, 2024 - rounded to one decimal place 

Performance and Distributions 

Based on performance data recorded as at October 31, 2024, the iShares Europe ETF has returned 3.48% per annum since inception, being July 2000.  

Over the last one, three, and five-year periods, average returns for the IEU ETF were 17.67%, 7.64% per annum, and 7.68% per annum, respectively. 

By way of comparison, the Vanguard FTSE Europe Shares ETF has an average return of 7.08% per annum since inception. While this result is higher than that of IEU, it should be noted that the fund achieved this result over nine years, compared with approximately 24 years for the iShares Europe ETF. 

As a final point of comparison, over the one, three, and five-year periods leading up to October 31, 2024, VEQ’s average total returns were 18.41%, 6.49% per annum, and 7.35% per annum. 

These results, which take into account management fees and distributions from the funds, demonstrate a modest difference in performance over recent years, with each fund faring better over at least one nominated timeframe.  

While both funds stated objectives focus on capital growth, the pair do have an established history of paying distributions to unitholders. Over recent years, the iShares Europe ETF has paid distributions on a semi-annual basis, while the Vanguard FTSE Europe Shares ETF has paid quarterly distributions. 

Investors are reminded that the amount and timing of distributions will vary from period to period, and there may even be periods where no distributions are made. 

Fees 

Between the two products, there is a notable difference in management fees. However, this alone should not be the sole focus of prospective investors eyeing exposure to European shares, as the two products vary in other ways, as detailed throughout this article. 

The management fee for the iShares Europe ETF is 0.59% per annum, whereas the corresponding fee charged by Vanguard for its FTSE Europe Shares ETF is 0.35% per annum. 

Management fees are calculated in relation to the net asset value (NAV) of each fund daily, and prospective investors should note that other fees may apply.  

Please refer to the relevant Product Disclosure Statements for up-to-date details on costs and expenses, which may be deducted from the fund’s assets as and when they are incurred.  

Summary 

The iShares Europe ETF and the Vanguard FTSE Europe Shares ETF both seek to track shares from European share markets, and the pair feature a swathe of common holdings, alongside similar weightings to various sectors and countries. However, VEQ invests in a more diversified basket of shares, extending to more than 1,200 companies compared with around 360 for IEU, and its management fee is lower at 0.35% per annum versus 0.59% per annum. 

iShares has emerged as the larger of the two funds, with its net assets around triple that of Vanguard’s Europe-focused fund. Much of this discrepancy reflects the fact that IEU has traded as a listed fund for a far longer period of time. This is also observed in a lower average annual return since inception compared with the shorter respective period for VEQ, but the IEU ETF has outperformed over the last three- and five-year periods. For more information, you can read about the iShares Europe ETF here, and the Vanguard FTSE Europe Shares ETF here. Before investing in any ETFs, you should consult the respective product’s Product Disclosure Statement, which will be available on the fund’s website. 

For more information, you can read about the iShares Europe ETF here, and the Vanguard FTSE Europe Shares ETF here. Before investing in any ETFs, you should consult the respective product’s Product Disclosure Statement, which will be available on the fund’s website.