With the launch of HSBC’s Dow Jones Euro Stoxx 50 ETF on the London Stock Exchange yesterday, European investors now have exchange-traded funds from 12 different European issuers to choose from if they want to track this leading equity benchmark – and that’s not counting the several variants offering investors different ways of treating dividend income.

The DJ Euro Stoxx 50 is Europe’s behemoth stock index and is number one in the ETF market by a number of measures, including highest ETF turnover by index and largest assets under management by index (to name just two). Three of the largest five equity ETFs in Europe are DJ Euro Stoxx 50 trackers.

But what should an investor who wants to invest in this pan-European benchmark look at when evaluating fund providers? More broadly, what distinguishes one ETF provider from another – after all, aren’t they all trying to do the same thing? As it turns out, there are some interesting nuances to consider.

First, here’s a table showing the available options. Apart from the fund name, we show each ETF’s assets under management, total expense ratio, the fund structure (in-kind or swap-based), whether it reinvests dividend income (R) or distributes it and, if so, whether annually (A), semi-annually (S) or quarterly (Q). In the final column, we show each fund’s performance from the end of 2008 to the end of the third quarter 2009 (where available).

*31/12/2008-30/09/2009

Fund Size

The larger you are in the ETF business, the easier it becomes to attract new assets. European fund rules preclude many investors from owning more than 25% of an ETF so institutions are naturally attracted to the bigger funds. In the table it’s clear that there’s a big jump from the multi-billion funds run by Lyxor, iShares and db x-trackers to the rest of the field, although some of the newer operators in the European market have been picking up assets at a steady pace.

The challenge for new entrants such as HSBC will be to make an impact in this crowded sector of the ETF market, although the bank has consistently stated that it aims to gain from the long-term growth potential of the ETF market in general rather than focussing on taking market share from its competitors.

Fund Structure

Since it consists of the largest 30 European stocks by free-float market capitalisation, the DJ Euro Stoxx 50 index ought to be one of the easiest indices to replicate via the in-kind method (holding the underlying index stocks). In fact, seven of the funds in our table do use this means of index tracking, while the other five use the swap-based method that is common to a large proportion of European ETFs.

Is this a major factor influencing investors’ choice of fund? Looking at the table it doesn’t appear to be, given that the largest four funds include two of each type. 

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