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Europe exchange-traded funds (ETFs) offer a wide range of strategies for exposure to companies based in Europe, including funds with holdings across the continent, currency hedges and portfolios that exclude companies from non-eurozone countries. The following is a synopsis of the three largest Europe equity ETFs determined by assets under management (AUM) as of March 22, 2016.
The WisdomTree Europe Hedged Equity ETF
In addition to its hedge against the euro, the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ) further reduces exposure to the currency by limiting holdings to companies deriving over 50% of revenues from exports to non-eurozone countries. With $14.49 billion in AUM, the fund is the largest Europe equity ETF with a portfolio distributed to over 128 holdings in the eurozone. In addition to screening for non-eurozone revenues, HEDJ also focuses on dividend-paying companies, which generate a distribution yield of 2.58%.
The fund’s largest holdings by country are Germany and France, with allocations of 26.3% and 25.03%, respectively. The largest sector in the portfolio is consumer noncyclical companies, followed by industrials. Anheuser-Busch InBev SA/NV (NYSE: BUD), based in Belgium, is the largest position at 6.32%, followed by Siemens AG (OTCMKTS: SIEGY) with 4.82%. The fund’s average volume of $241.47 million, based on the trailing 45 trading days, combined with an average trading spread of 0.02%, results in ample liquidity and efficient executions for institutional traders.
HEDJ's expense ratio of 0.58% is slightly higher than the category average of 0.5%, due in part to the cost of hedging the currency. The extra hedging cost, however, has provided a positive return on investment due to the euro’s weakness versus the dollar since 2011. HEDJ, due in large part to its currency and revenue hedges, has outperformed the unhedged ETFs in this group over three and five years with annualized returns of 6.97% and 7.03%, respectively.
The Vanguard FTSE Europe ETF
With a portfolio composed of 1,190 positions, the Vanguard FTSE Europe ETF (NYSEARCA: VGK) offers proportional total-market exposure to European companies in developed countries. The fund’s AUM of $13.67 billion is weighted toward the United Kingdom, which represents 31.21% of the portfolio, followed by Switzerland with 13.86%. Sector allocations favor financials, at 22.72%, and health care at 13.6%. The three largest holdings are based in Switzerland, with Nestle SA (OTCMKTS: NSRGY) at 2.66%, Roche Holding Ltd. AG (SWX: RO) at 2.31% and Novartis AG (NYSE: NVS) at 2.11%.
Average daily volume of $271.54 million and a trading spread of 0.02% support institutional priorities for liquidity and efficient transactions. The fund represents the Vanguard tradition of low-cost ETFs with an expense ratio of 0.12%, which is 38 basis points lower than the category average. The distribution rate is the group’s highest at 3.91%. VGK has a three-year annualized return of 2.4