The Best Canadian ETFs for Investing in European Stocks

Some Canadian investors are beginning to trim their U.S. exposure. Maybe it’s concerns over Donald Trump’s rhetoric, like talk of tariffs or treating Canada like the 51st state. Or maybe it’s because the U.S. market feels concentrated and richly valued right now.

Whatever the reason, the solution doesn’t have to be more Canadian stocks, even if the tax efficiency is appealing. There’s a whole world outside North America, and Europe is a great example.

Many investors don’t realize how much they already rely on European brands. Think coffee from Nestlé, champagne from LVMH, shampoo from L’Oréal, business software from SAP, or gas from Shell. Even luxury names like Ferrari and exotic tech like ASML make up a major part of the global equity landscape.

Ignoring Europe means missing out on some of the world’s biggest and most resilient businesses. And while BMO now offers Canadian Depositary Receipts (CDRs) for a few European stocks, I still prefer the broader and more diversified exposure ETFs can offer.

Here are three of my top picks for adding European equities to a Canadian investment portfolio.

Vanguard FTSE Developed Europe All Cap Index ETF (VE)

If keeping fees low is your top priority, it’s hard to beat VE. In classic Vanguard fashion, it undercuts most competitors with a 0.22% management expense ratio. That might not sound dirt cheap compared to Canadian equity ETFs, but for international equity exposure, it’s very reasonable.

The fund tracks more than 1,200 market cap–weighted stocks in the FTSE Developed Europe All Cap Index. The portfolio leans toward large, stable blue-chip names, with an average market cap of $81.54 billion and a return on equity of 12.8%. Earnings are growing at a healthy 14.8% rate, and the fund trades at a reasonable 16.9 times earnings.

Top holdings are what you’d expect for a Europe-focused fund: ASML, SAP, Nestlé, Roche, Novartis, Novo Nordisk, HSBC, Shell, AstraZeneca, and Siemens. VE is as no-frills as it gets. This is your cheap, set-it-and-forget-it option. Don’t overthink it. Vanguard ETFs are built to be bought and left alone.

iShares MSCI Europe IMI Index ETF (XEU)

Picking iShares over Vanguard is kind of like choosing Pepsi over Coca-Cola. I personally think it tastes worse, but I get why some people prefer it.

iShares' answer to VE is XEU, which tracks the MSCI Europe Investable Market Index. It holds just over 1,200 market cap–weighted European stocks and trades at a similar price-to-earnings ratio of 17.45.

The top holdings are nearly identical to VE, with only slight differences in weightings. You’ll see names like Nestlé, ASML, SAP, Shell, and Novartis dominate the top of the list. The main downside is the higher cost. XEU charges a 0.28% MER, which makes it hard to recommend over Vanguard on price alone.

I’d only really go with XEU if your brokerage platform offers commission-free trading on iShares ETFs. That said, XEU has one useful feature. Because it tracks a different index than VE, it can be a handy substitute for tax loss harvesting. The exposure is very similar, but the funds are legally distinct, so you won’t run into superficial loss issues.

BMO MSCI Europe High Quality Hedged to CAD Index ETF (ZEQ)

If you’re willing to pay a higher 0.45% MER for the potential to outperform VE or XEU, ZEQ might be your best option. It’s a smart beta ETF that tracks the MSCI Europe Quality 100% Hedged to CAD Index, a more specialized benchmark than the broad cap-weighted ones used by VE and XEU.

Right away, there’s a key difference. ZEQ is currency hedged, which means it aims to neutralize the impact of exchange rate fluctuations between the euro and Canadian dollar. VE and XEU are unhedged, so your returns can swing depending on where the CAD moves. With ZEQ, that variable is largely removed.

It also doesn’t just passively follow market cap. Instead, it screens the investable universe for companies with high return on equity, consistent year-over-year earnings growth, and low financial leverage. These three metrics are combined into a quality score, which is then multiplied by market cap to determine the final weight, subject to a 5% cap per stock. The index is rebalanced semi-annually.

The holdings look noticeably different from VE or XEU. Healthcare has a bigger presence, with Novo Nordisk, Novartis, and AstraZeneca all among the top four. ASML, Nestlé, and Unilever round out the top names. The portfolio is also more focused, with just 125 holdings compared to over 1,200 in VE and XEU.

Despite the higher 0.45% fee, ZEQ has historically delivered better performance. Over the past 10 years, it returned 8.27% annualized, compared to 7.61% for VE and 7.73% for XEU. If you want quality-tilted European exposure with currency hedging, ZEQ offers a better option.