Indexy a trhy
Investing in the European Union: Opportunities, Risks, and ETFs
Key takeaways
- The European equity market is the second largest in the world after the US and includes companies such as ASML, LVMH, Nestlé, and Siemens.
- The main indices are MSCI Europe and STOXX Europe 600 — the latter also includes non-EU members such as Switzerland and Norway.
- Geographic diversification through Europe reduces a portfolio's dependence on US developments — but adds eurozone and political risk.
- UCITS ETFs on European markets are highly liquid, have low TERs, and are available on all major European exchanges.
- A stronger euro relative to CZK protects investors from crown depreciation — but euro weakness cuts into returns.
The European equity market is one of the most developed and liquid in the world, yet Czech retail investors often overlook it in favour of US equities. Companies such as ASML, LVMH, Nestlé, SAP, and Novo Nordisk belong to the global elite. What does the European market offer and how can you capture it efficiently through a UCITS ETF?
What makes up the European equity market?
When we talk about the "European market", we generally mean MSCI Europe or STOXX Europe 600 indices. Both cover large and mid-cap European companies, and STOXX 600 also includes Switzerland, Norway, and the United Kingdom — countries outside the European Union. The index is well diversified across sectors: industrials, financials, healthcare, consumer goods, and technology. Unlike the US S&P 500, technology does not represent a dominant share here. Read more about how stock indices work.
Why add Europe to a portfolio?
The main argument is diversification relative to the US. The American equity market makes up a large portion of global All-World indices — adding a European ETF increases the European weight deliberately. European equities tend to be valued at lower price-earnings multiples than US equities, which may (but does not necessarily) indicate better valuations. Moreover, for Czech investors, a strong euro relative to CZK protects the real value of euro-denominated assets.
Risks of investing in Europe
Europe has specific risks that cannot be ignored:
- Political fragmentation: The EU is a union of 27 states with differing economic policies — coordination is complex and political crises (such as Brexit) can affect the entire market.
- Lower technology exposure: European indices have fewer technology giants than the US S&P 500, which may be a handicap during a technology boom.
- Currency risk for non-euro investors: The Czech crown is relatively stable against the euro, but CZK/EUR moves affect returns.
- Regulatory burden: EU regulation can increase costs for companies and slow down innovation.
How to invest via UCITS ETF?
There is a range of high-quality and liquid UCITS ETFs on European markets: funds tracking MSCI Europe, STOXX Europe 600, or EURO STOXX 50. The Irish domicile of these funds is advantageous from a tax perspective — see the article on Irish domicile of UCITS ETFs. When selecting, check TER, accumulating vs. distributing share class (see Acc vs. Dist comparison), and daily trading volumes. You can find an overview of funds in the ETF navigator.
Europe as part of a balanced portfolio
For an investor focused on global diversification, Europe is a natural part of the portfolio — either automatically through an All-World ETF, or deliberately through a dedicated European fund. The key is knowing why you have it in your portfolio, what weight you assign it, and how you rebalance this allocation periodically.
FAQ
What is the difference between MSCI Europe and STOXX Europe 600?
MSCI Europe covers only European developed markets. STOXX Europe 600 also includes Switzerland, Norway, and the United Kingdom — countries outside the EU but geographically in Europe. The composition and weights differ. Always verify current composition on the index provider's website.
Should I add a standalone European ETF alongside VWCE?
It depends on your intended allocation. VWCE automatically includes Europe at its market capitalisation weight. Adding a European ETF increases your European weighting above this average. It is an active decision — not a necessity.
Are European equities cheaper than US equities?
European equities have historically been valued at lower P/E multiples than US equities. This may indicate better valuations, but may also reflect lower expected growth or a higher risk premium. Cheap does not automatically mean a good investment.