Most of the personal finance literature is written from a US perspective and as a result suggests holding US domiciled funds like the SPY, VOO, VTI/VTSAX, VXUS/VTIAX and BND among many others. Due to PRIIPs many European investors can’t access US domiciled funds. Moreover, there are a few US tax traps which make investing in US funds unattractive for some European investors.
Given these constraints which European domiciled alternatives you have for these popular funds?
You need to consider the following things when looking for an European domiciled alternative to a US fund:
- what index does the original fund track? The index determines the fund’s investment strategy. Two funds tracking the same index have the same investment strategy and should have similar return profiles. For example two index funds tracking the S&P 500 index should have a similar performance even though they are in different domiciles. By knowing the index you can look for an European fund which tracks the same index as the original (US) fund.
- what is the investment goal of the fund’s index? There are multiple index providers which offer indexes with similar goals. The FTSE All World and the MSCI ACWI are two different indexes from two different providers which have a similar goal: tracking stocks from the whole world. If you don’t find a European domiciled fund with the same index, you can try to find a European domiciled fund with a similar investment goal.
- Learn to use a screener’s filter options An ETF screener (e.g. justETF) has multiple search criteria and filters which make it easy to find any ETF according to any criteria (e.g. sector, country, asset type, provider, index). You just need to know what you are looking for.
SPY and VOO
SPY and VOO are funds which track the S&P 500 index. This index tracks the performance of the largest companies in the US stock market. There are 11 ETFs tracking the S&P 500 index domiciled in Europe. Notable mentions being the Vanguard S&P 500 UCITS ETF and the iShares Core S&P 500 UCITS ETF.
The VTI and VTASX are both index funds which track the CRSP US Total Market index. This index tracks the performance of all companies in the US stock market across all market caps. The VTI is the ETF version while VTASX is the mutual fund version.
There isn’t any EU domiciled ETF tracking the CRSP US Total Market index. Also there isn’t any EU domiciled ETF tracking an alternative index with a similar goal.
An alternative would be picking a S&P 500 ETF since the performance of the S&P 500 index and the CRSP US Total Market index are highly correlated. The returns between of these two indexes are similar because the companies of the S&P 500 index, are the largest companies in the US, and are responsible for the majority of the whole stock market’s performance.
The VXUS and VTIAX are both index funds which track the FTSE Global All Cap ex US Index. This index tracks the performance of companies outside the US across all market caps. The VXUS is the ETF version while VTIAX is the mutual fund version.
There isn’t any EU domiciled ETF tracking the FTSE Global All Cap ex US Index. Also there isn’t any EU domiciled ETF tracking an alternative index with a similar goal.
VXUS is usually used along with VTI to create an “all world/global portfolio” with an overweight towards the US. You can achieve that goal by picking an all world fund (e.g. Vanguard FTSE All-World UCITS ETF, iShares MSCI ACWI UCITS ETF) along with an S&P 500 fund in order to increase the allocation towards the USA.
BND is an ETF which tracks the Bloomberg Barclays US Aggregate Bond Index. This index provides exposure to the investment grade US bond market (corporate, government and international dollar denominated bonds) across multiple maturities.
A notable alternative is to pick a fund that tracks the whole bond market instead of only the US market. The iShares Core Global Aggregate Bond UCITS ETF is an example of that.
A specific fund is just a medium through which you achieve a particular investment strategy. Having a clear understanding of your desired strategy allows you to find a replacement fund when a particular fund is not available. You may not always find a perfect replacement but often a good replacement is all you need.