European Exchange Traded Funds

As investors, you surely have bought and sold stocks in the market and found the process very convenient, quick and hassle free.  The only problem may be that you had no expertise in stop picking and couldn’t profit much or even had a loss.  If you have invested in mutual funds, you know that they have professionals who invest your money in carefully chosen stocks.  But buying and selling mutual fund units is not as simple as trading in stocks.  Also, the fees to be paid are quite high.

Now, if you are on the lookout for some kind of investment opportunity which overcomes the drawbacks of both stocks and mutual funds, exchange traded funds are the right choice.  You can even make region or country specific investments by investing in European exchange traded funds, American exchange traded funds and so on.

What is an Exchange Traded Fund?

An exchange traded fund is a pool of investments.  These investments could be in any of the asset classes – shares of companies, bonds, commodities and even currencies.  This entire pool is divided into units.  A person wishing to invest in an ETF would have to submit an application if it is a new fund and he would be allotted these units.  Any purchase later and sale is done in the market just like shares.

European Exchange Traded Funds

Vanguard European ETF and iShares S&P Europe 350 are two very popular European exchange traded funds.  These invest in 15 odd European countries, though the investments are concentrated in EUROPEAN, France, Germany and Switzerland.
Other than these pan European funds, there are exchange traded funds which invest in a specific country like iShares MSCI Austria, iShares MSCI France, Market Vectors Poland and Market Vectors Russia.

There are also sector based European exchange traded funds like iShares MSCI Europe Financials Sector.

You can invest in leveraged funds like the Proshares Ultra Short MSCI Europe, a 2x leveraged inverse European ETF which is designed to move twice the inverse of the daily movement of the MSCI Europe index.  If the underlying index moves down 5%, the price of the ETF would gain by 10%.

Some Concepts of Exchange Traded Funds

  • Passive vs.  Actively managed ETFs

Many European exchange traded funds are passively managed which means that they track a particular index.  The fund managers do not have to worry about selecting stocks.  All they have to do is ensure that the ETF reflects the composition of the underlying index.
Actively managed exchange traded funds on the other hand, follow the investment pattern of a mutual fund or track investments of a successful fund manager.

  • Transparency

ETF Holdings are disclosed on a daily basis ensuring transparency.

  • Arbitrage opportunities

Unlike mutual funds, European exchange traded funds provide arbitrage opportunities when there are differences between the ETF price and the prices of shares of companies comprising the ETF. 

  • Different kinds of ETFs

Though all ETF investors aim to profit from their investments, they may use different kinds of European exchange traded funds to achieve this goal.  Investors who want to earn a regular income could buy high dividend ETFs.  Those who are interested in trading will buy leveraged ETFs.  For those who are particular about safety of their investments, there are covered call exchange traded funds.  The bears can invest in bearish ETFs.  Those can wish to follow ethical standards in investing can put their money in ethical ETFs.

Investors wanting to actively trade in European exchange traded funds should ensure that the transactions are done at that time of the day when the European market is active.  The market will be liquid and the difference between bid and ask prices is low.  Buyers and sellers would thus get the best rate.