The ETFS Euro STOXX 50 ETF (ASX: ESTX) can add both capital growth and income to an investor’s portfolio. Let’s take a quick look at this index-tracking ETF.
What Are ETFs?
Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange and provide exposure to a range of shares or assets with a single purchase. ETFs can be ‘managed funds’ or ‘index funds’, or in other words, active or passive.
The Rask Finance video below explains index funds:
ETFS Euro STOXX 50 ETF
The ETFS Euro STOXX 50 ETF is an index-tracking ETF that aims to match the performance of the EURO STOXX 50 Index, which covers 50 companies from 12 eurozone countries.
The ETF aims to achieve this performance by investing in a portfolio of 51 blue-chip “supersector” leaders, or large blue-chips, from countries throughout Europe.
Many of the companies in the portfolio may not be familiar to most Australian readers, however, there are a few household names such as adidas AG (ETR: ADS), Volkswagen Group (ETR: VOW) and Airbus SE (EPA: AIR).
Around 40% of the companies are based in France and another ~27% are based in Germany, while Spain and the Netherlands both make up more than 5% each.
Funds are spread relatively evenly across sectors, with financials receiving the highest weighting of 15.5%, followed by consumer discretionary (13.8%), industrials (13%) and consumer staples (11.7%).
Over the last three years, the ESTX ETF has returned 10.65% per year, actually slightly outperforming the benchmark index return of 10.57% per year. Over the last year, returns were 8.36%.
ESTX also pays semi-annual dividends and currently offers a trailing yield of 2.88%.
Further, ESTX is domiciled in Australia and as such, does not require the completion of a W-8BEN tax form.
Fees & Risk
The ESTX ETF is low cost, charging a 0.35% per year management fee. In terms of risks, the ETF is relatively small, with a market capitalisation of around $50 million. However, the fact that the ETF invests in large blue-chips means that liquidity is high.
A portfolio of 51 companies could also be considered somewhat concentrated compared to an ETF tracking the ASX 200 or the S&P 500. It’s also important to note that the ESTX ETF is unhedged, meaning investors are exposed to movements in the euro against the Australian dollar (AUD/EUR). Of course, this could either boost returns or lower them depending on the movements.
My Take
The ESTX ETF appears to be an interesting addition to a balanced portfolio, providing low-cost exposure to blue-chip European countries. The main risks to consider would be the exchange rate movements and the size of the ETF.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
