As assets managed by US based Exchange Traded Funds (ETFs) hit $4tn, it’s fair to say that passive investing has become mainstream due to fairly acceptable reasons:
- easy to access
- low fees
- similar returns to actively managed portfolios (at least in equities)
Now the third point might be up for a discussion from both directions – some would say they beat most active portfolios, some might point out that maybe the past 10 years won’t be a good indication of the upcoming 10 years – but more about that maybe another time.
Since most investment advice/books tend to be tailored to US investor, it might come as a surprise for EU based investors that ETFs might not be so easy to access or cheap at all. Since 2018 European investors are cut off from most US listed ETFs due to European regulation. As a result, EU investors are mainly left with UCITS compliant ETFs and, confusingly, many of the often used tickers are exactly the ETFs that can’t be accessed.
Instead, you can use the Morningstar screening tool to find UCITS compliant ETFs or, since iShares is by far the dominant provider in Europe (see this article) you can as well go directly to the iShares website which is at the moment a bit faster to use.
So what’s the catch?
If there are so many EU compliant ETFs available anyway, what’s the the problem? Well, except for possible small difference in fees (higher for the European option), lower liquidity in those ETFs might mean that if you’re not careful, you might end up trading far more expensive than expected. So while EWZ US is a well known large ETF with 8bn AUM that gives investors exposure to Brazilian equities, IBZL, the European equivalent, has only $400m in assets and here execution can definitely become an issue, especially in case of overtrading.
I will definitely write a bit more on the topic of choosing ETFs and why staying mainstream is perhaps the best thing to do if you choose passive investing. Let me know what you think about the topic in the comments below or if you have any particular questions!