Page 39 - DIY Investor Magazine | Issue 32

WHY?
• EAFE Countries tend to have higher dividend yields (3%) than US companies (1.5%)
• Every time a dividend is paid outside of the country where the company is based you may be taxed. Have a look at how it works.
• European ETFs may not be fully Level 1 tax-efficient. One of our readers, Juan, pointed to the KPMG guide (pg 12) that lists WHT rates in different countries. Some rates may be applied by Irish ETFs or Luxembourg SICAVs on e.g. French Dividends (26.5% rate per KPMG).
• However, ETF providers have not provided clarity on what rates are currently being applied.
• While we have no influence over the rates being applied, knowing it could be helpful in determining the choice of accumulating vs. distributing share classes to optimize taxes in certain situations.
Note that the consistent ETF outperformance vs. benchmarks per below table points to ETFs being overall tax-efficient.
STEP 3 – COMPARE ETF PERFORMANCE
Now that you have filtered for a number of candidates, performance is a good final step to select the best ETF.
But remember, the above steps are more important. Tracking Difference doesn’t always guarantee future outperformance.
WHICH ETFS SHOULD I CHOOSE?
Based on your choice of benchmark and characteristics, you can narrow down the selection using TER and 3 and 5-year performances. If choosing the most diversified ETFs:
• Accumulating Share Class – The cheapest and best performing Stoxx 600 Europe ETF is Lyxor Core Stoxx Europe 600 (available in EUR/GBP/USD) closely followed by Xtrackers Stoxx Europe 600 (EUR/GBP).
Vanguard FTSE Developed Europe is also a cheap
alternative.
• Distributing Share Class – iShares Stoxx Europe 600
is the only fund tracking Stoxx 600 (only in EUR) while Vanguard FTSE Developed Europe is the cheapest highly diversified distributing fund (EUR/ GBP/CHF/USD).
European Equities - ETF Cost and Performance Comparison
Thank you for reading.
Happy Investing and keep’em* rolling !
(* Wheels & Dividends)
39
DIY Investor Magazine · Feb 2022