Canadian Investors Shift Focus to European Equity ETFs in 2024 Surge

Canadian Investors Shift Focus to European Equity ETFs in 2024 Surge

As Canadian investors diversify beyond the U.S. markets, a striking trend has emerged in the ETF landscape. According to Vanguard Investments Canada Inc., Canadian-listed European equity ETFs attracted $323 million in inflows between January and April 2024 — a 23-fold increase compared to just $14 million during the same timeframe in 2023.

Despite the European Union boasting a GDP of US$20 trillion, with the U.K. contributing another US$3.8 trillion, Canadian investor interest in Europe-focused ETFs had historically been lukewarm. Currently, there are only nine unique Europe-focused ETF products available on Canadian exchanges, totaling approximately $3 billion in assets.

More than half of these assets are held in just two BMO ETFs, including the BMO MSCI Europe High Quality Hedged to CAD Index ETF — the largest of its kind at $975 million.

ETFs from issuers such as iShares, Vanguard, and Global X have also gained traction, but several others still struggle to gather significant investor capital. However, 2024’s strong performance has reignited attention.

“European equities, once largely overlooked, have now outperformed U.S. markets for the first time in 25 years,” said Maddy Griffith, ETF strategist at CI Global Asset Management.

Griffith and others believe that for portfolios heavily weighted toward the U.S., Europe now offers a valuable rebalancing opportunity — driven by lower valuations, credible policy shifts, and broad macro potential. European equities currently trade at a 30–35% discount to U.S. counterparts in terms of price-to-earnings ratios.

According to Chris Cullen of Brompton Funds, this valuation gap — once attributed to weaker earnings — may be narrowing. Germany, Europe’s largest economy, has shifted monetary policy to free up capital for defense, infrastructure, and clean energy. Additionally, any future resolution to the war in Ukraine could further boost the region’s appeal.

Franklin Templeton’s Ahmed Farooq highlighted that even in the face of U.S. tariff threats, many European firms have mitigated risk by maintaining U.S.-based operations. Meanwhile, Europe is pushing to reduce reliance on the U.S., seen in cultural signs like “Make Europe Great Again” merchandise.

Back home, financial advisors are taking notice. “You can’t eliminate U.S. exposure,” said Farooq, “but Europe offers diversification — and clients are asking for it.”

Ashish Dewan of Vanguard emphasized that while low valuations are attractive, a long-term perspective is essential. “European equity ETFs reduce portfolio volatility and offer diversification through smaller market caps, different sectors, and distinct currencies.”

Popular ETF products include:

• Vanguard FTSE Developed Europe All Cap Index ETF

• iShares MSCI Europe IMI Index ETF (and hedged version)

• BMO MSCI Europe High Quality Index ETF

• Global X Europe 50 Index ETF

• Invesco S&P Europe 350 Equal Weight ETF

• Brompton European Dividend Growth ETF – the only actively managed option, holding ~30 dividend-growing large-cap stocks with covered call strategies for additional income

Europe-only ETFs aren’t the only route. Broader international funds like Franklin Templeton’s restructured global equity product offer a simpler way to access Europe within a global allocation model.