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Thursday, 11 August 10:50 (GMT -05:00)

Stock and commodities markets

European ETFs - Decent Alternative to American ETFs

As you probably know, some American assets, like ETFs, have limited access. Why's that? The thing is that such assets are regulated by the so-called PRIIT, which was introduced in early 2018. The abbreviation refers to investment and insurance products tailored to retail clients. The profitability of such assets is subject to considerable fluctuations while the assets themselves are considered to be risky. These are various funds, including exchange-trade funds.
The mentioned PRIIP rules are forcing the financial service providers and brokers to publish a specific set of info documents including the so-called KID with the key info on certain investment and insurance products. Since the funds coming from outside of Europe do not conform to these requirements, they cannot be offered to EU residents as investment products.
Can one bypass the investment restrictions when it comes to U.S. ETFs and is it worth doing?
So, now you know why EU residents cannot access American funds directly. However, you can get the status of a professional client to make the PRIIP restrictions not applicable to you anymore. However, this is not the simplest and easiest way out. There are alternative ways you should consider, especially as getting the above-mentioned status is not that easy.
With that being said, the easiest and simplest alternative is taking advantage of the services offered by certain brokers. Such brokers can let you access U.S. ETFs. At this point, there are two reliable options to choose from - Dif Broker and Exante, NordFX experts report.
How do brokers bypass the EU regulation?
Dif Broker complies with less strict Portuguese regulation, CMVM, which obliges the broker to publish the KID for ETFs but the docs are not required to be translated from English into other languages.
Exante sets a rather high minimal deposit  - $10.000 - which may be a roadblock to some retail investors.
Apparently, before investing with one of these brokers, you should consider all of the transaction and maintenance fees to figure out whether such investments would be rational and profitable. For example, Exante's withdrawal fee is 30 euros, which means, for your investment to be profitable, the amount should be considerable enough to cover the fees and make some money on top of that.
European ETFs to the rescue
Despite what the situation looks like on the surface, EU investors are not entirely cut off from the American ETF market since some European stock markets, the ones in London and Frankfurt, offer you hundreds of ETFs equivalent to those traded in the USA. Most of them are invet run by the same providers like State Street, iShares, Wisdomtree etc.
With that being said, EU investors can invest in funds quoted in Europe without limitations through brokers headquartered in Germany, Czech Republic, Poland, Croatia etc. Apparently, this is not a perfect alternative, though a decent one. The thing is that some of those European ETFs are even costlier to manage. For example, the world's most popular ETF, the SPDR, who invests in S&P500, runs the annual management cost of 0.09% in the USA but 0.15% in the EU. The SPDR is available in the UK (USD and EUR), Germany, France, Switzerland, Italy.
The advantages of investing in European funds boils down mostly to convenience and ease of access for local investors, especially when it comes to getting PIT-8C. On top fo that, it's easier for them to regulate some possible disputed between the EU investor and the broker headquartered in the EU.
What if that's no European ETF alternative?
To start with, most American ETFs have their counterparts in Europe. Otherwise, we can opt to choose CFDs on those ETFs. However, these are more tricky derivatives, with leverage, swaps and other pitfalls. So, if you consider dealing with such CFDs, be careful and consider all of the potential risks since those are not long-term investment options but rather a way to temporarily hedge other trades or generate short-term profits.



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