While U.S. equity markets have been top-of-mind for many investors, European equities have exhibited a noteworthy performance year-to-date. For investors looking to reduce their North American equity exposure, pure-play European equity-focused ETFs provide fulsome exposure to all or specific aspects of the European equity market.

Looking across the landscape

Continental Europe offers a wide range of investment opportunities. As shown in the chart, equity markets across different countries have performed variably year-to-date. This diversity within the European equity asset class allows investors to tap into a broad spectrum of economies and companies, each contributing unique economic value.

While the prevailing stereotype of the European economy is that it represents the old economy, innovation has reshaped the continent’s economic landscape, dispelling the aforementioned notion. European-based firms such as GSK, Roche, ASML, and LVMH have become regional and global leaders within their industry. Higher-growth-oriented sectors, such as Technology, Health Care, Industrials, and Consumer Discretionary, now represent more than 50 percent of the MSCI Europe Index, a sharp increase from previous years.

Gaining European Equity Exposure Through Differing ETFs

The diverse nature of the European equities asset class provides Canadian investors with optionality; as such, there are ETF solutions that provide broad-based market exposure, dividend-focused exposure, or sector-specific exposure.

Broad-based Market ETFs

For investors seeking solutions that provide comprehensive exposure to the European equities asset class, the Mackenzie Maximum Diversification Developed Europe Index ETF (Ticker: MEU) and Vanguard FTSE Developed Europe All Cap Index ETF (Ticker: VE) are ETFs that provide comprehensive exposure to European equities within several developed markets.

MEU reflects the performance of the TOBAM Maximum Diversification Europe Index, which is designed to measure the performance of large and mid-capitalization equity securities of developed European markets selected and weighted to enhance diversification. Conversely, VE tracks the performance of the FTSE Developed Europe All Cap Index.

Year to date, as of July 31, 2024, MEU and VE have returned 13.14% and 13.32%, respectively.

Dividend-Focused Exposure

For dividend-oriented investors, the RBC Quant European Dividend Leaders ETF (Ticker: RPD) and Brompton European Dividend Growth ETF (Ticker: EDGF) are actively managed income-oriented solutions. RPD provides exposure to a diversified portfolio of high-quality European equity securities expected to provide regular income from dividends and have the potential for long-term capital growth.

The ETF utilizes a quantitative multi-factor approach to gauge a company’s financial strength and prioritizes companies that are consistent and growing dividend payers. Similarly, EDGF reflects companies with a history of dividend growth or potential future dividend growth; chosen firms must have a market cap of at least $10 billion.

The manager has the discretion to write covered call options on the Brompton ETF’s portfolio, to earn option premiums and lower the overall volatility of returns associated with owning a portfolio of equity securities. Call options will be written only in respect of the securities held in a Brompton ETF’s portfolio.

Year to date, as of July 31, 2024, RPD and EDGF have returned 12.69% and 11.69%, respectively.

Sector-Specific Exposure

For investors looking for European banking sector exposure, the Evolve European Banks Enhanced Yield ETF (Ticker: EBNK/EBNK.B) invests in equity securities of the largest European banks on an equally weighted basis, with the added value of a covered call strategy applied to up to 33% of the portfolio. The fund will track the performance of the Solactive European Bank Top 20 Equal Weight Index Canadian Dollar Hedged.

Year to date, as of July 31, 2024, EBNK and EBNK.B returned 23.49% and 24.66, respectively.

Takeaway

For investors looking to diversify away from North American equities, European equities represent an opportunity to gain exposure to companies with a distinct value proposition and catering to an international market.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.