What You Need To Know About The iShares Europe ETF (ASX:IEU)

The iShares Europe ETF (ASX: IEU) is one way to gain exposure to European shares and diversify your Australian holdings. Here’s what you should know about IEU.

iShares Europe ETF (IEU)

The IEU ETF tracks the S&P Europe 350 Index, which measures the performance of large-cap companies in 16 developed European markets. Large cap companies are also called blue chips, as this video explains:

IEU has over 350 individual share holdings when all companies and cash holdings are considered. Right now, around 26.5% of the companies are based in the UK, and there is also significant exposure to France (17.5%), Switzerland (15.6%) and Germany (13.2%).

The ETF also has smaller exposures to countries such as the Netherlands, Spain, Sweden and Italy. In terms of companies, some of the largest holdings would be familiar to Australian investors, such as Nestle SA (SWX: NESN) and HSBC Holdings Plc (LON: HSBA).

One reason to invest in IEU may be the lower valuations of Australian and US shares versus European shares. For example, the average price-earnings (P/E) ratio of the IEU share holdings is 16.12 times and the average price-to-book-value (P/B) ratio is 1.79 times. Compare this to the iShares S&P 500 ETF (ASX: IVV), where the average P/E ratio is 21 times and the average P/B is 3.35 times.

Over the last ten years, the Europe ETF has returned 6.78% per year including semi-annual dividends.

IEU – Fees & Risks

The management fee for the IEU ETF is 0.6% per year, significantly higher than normal index fund ASX ETFs that track the Australian or US markets.

IEU is diversified across countries and sectors but the usual risks, such as market risk and exchange rate risk, still apply. The Washington Post also reported just last month that there are nine countries currently on the verge of recession, including Germany, the UK and Italy.

My View Of IEU

I could imagine the IEU ETF being appealing if you’re looking to diversify from the Australian or US markets, but the reality over the last five-to-ten years has been lower returns and a higher management fee. And with Europe’s current economic state, I’m not rushing in to buy IEU.

Disclosure: At the time of writing, Max owns shares in the iShares S&P 500 ETF (ASX: IVV).  

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