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What are the pros and cons of investing in the EU as a whole (through EURO STOXX 50 for instance) as opposed to one particular developed european country (such as Germany, through DAX 30 for instance)?

Would a fund containing stocks from several european developed countries considered as a international investment?

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Pros:

  • Higher geographic diversification, which potentially reduces risk. This also implicity includes different international exposure of different national companies
  • Higher sector diversification, as some countries are overrepresented in certain sectors of the economy, e.g. the automotive industry in Germany.
  • Potential currency diversification, if the fund include stocks denominated in non Euro currencies from within the European Union, e.g. the złoty or the Danish Krona. This does not apply for the EURO STOXX 50.

Cons:

  • Likely a slightly higher total expense ratio due to higher costs in managing international funds due to more administrative, legal, regulatory, marketing etc. paperwork.
  • Potential currency risk. Does not apply to EURO STOXX 50

Neutral:

  • Exposure to different countries exposes yourself to risks that may not be present in some countries, but may also alleviate existing risks. More volatility risks may or may not be rewarded with higher returns. This would, to a reduced degree, mirror the differences in investing in developed markets and emerging markets.

A fund containing stocks from several european developed countries is considered international, but does not offer the same international diversification as e.g. an All Country All World fund, which would include companies from developed (especially the US) and developing markets.

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  • wouldn't you add more political risk? (due to the different countries' regulations, and how they can change in the future) Given the options of investing in just one EU country, or in the EU market as a whole, which strategy would be regarded as 'simpler' and 'less risky' (even if it provides a smaller return).
    – Martel
    Apr 9, 2020 at 10:30
  • @Martel Since you won't reliably know where those regulations will happen in the long term, you might reduce the impact of political risk by diversifying. The further you diversify, the lower your potential risk, so the entire EU market is potentially less risky compared to a single country fund. The EU is still an intervowen economy, however, so crises will likely have cascading effects to other countries. And representing ~20% of the world economy, you are nowhere near as international as in a worldwide fund.
    – R.K.
    Apr 9, 2020 at 10:53

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