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Why do ETF issuers create near-identical versions of their ETFs for the US and Europe? This seems to have been common long before the current PRIIPS situation.

E.g. iShares Core MSCI Emerging Markets - here is the iShares IEMG product page (US) and here the iShares EIMU product page (European). Both are USD distributing and both track the same index, i.e. the MSCI Emerging Markets Investable Market Index. The US version has an inception date of 2012 and a TER of 0.11% and the European one has an inception date of 2018 and a TER of 0.18%.

Similarly, iShare ICLN (US) and INRG (Europe). Both use the S&P Global Clean Energy Index as their benchmark and both are USD (distributing). Here the European version has an inception date of 2007, i.e. well before any talk of PRIIPS or such like.

Why did iShares construct non-US domiciled variants of these ETFs? If, as a European retail investor, I use a platform like Interactive Brokers, I could (pre-PRIIPS) buy either variant. And any institutional investor can, presumably, continue to do so today.

The European variants usually have UCITS tagged on at the end of the name. But I find it hard to believe any institutional investor would believe that the UCITS versions of such major ETFs were dramatically safer (as a result of conforming to UCITS) and therefore worth the increased TER.

Is duplication the consequence of rules for certain classes of institutional investor? E.g. that certain countries require their pension funds to only invest in EU domiciled funds? At a time when most countries are worried about the ability to meet future pension obligations, it would be odd to force such entities to incur a higher TER on essentially the same product that they can buy for cheaper in the US.

And until recently, EU retail investors were free to buy the US versions on platforms like Interactive Brokers. So the European versions weren't constructed for these buyers and anyway INRG (mentioned above) was created way before PRIIPS became a thing. And if one wanted to make the same ETF available to retail investors in the US and EU these days, surely one would just produce the necessary KID documents (as I understand it most ETF providers don't bother with this as PRIIPS doesn't really affect institutional investors and they, like everyone else, are happy to charge European retail clients a higher TER for similar products if given the legal cover to do so by the EU, e.g. Vanguard VWRL, with TER 0.25%, for EU retail clients vs Vanguard VT, with TER 0.08%, for US clients).

The European versions of such ETFs like IEMG/EIMU are typically available on LSE, AMS, ETR, SIX and MIL and available in the local currency, e.g. GBP, EUR or CHF. But I find it hard to believe that institutional investors or even retail investors find the convenience of not having to deal with FX issues or a non-local exchange like NYSE as worth justifying increased TER. Just to be clear, I know there are ETFs that feature some element of currency hedging (sounds pointless and expensive to me but so be it) but the ETFs I'm talking about are non-hedged and so other than the FX aspects of entering or exiting positions in these ETFs, it seems fairly irrelevant if their price is expressed in USD, EUR or whatever.

Sorry for such a long question. And sorry for my loose usage of the term European - most of the ETFs I'm talking about as "European" are domiciled in Ireland but with the bulk of volume being traded on LSE and then significant volume on ETR and AMS also.

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    If you downvote, fair enough. But maybe consider commenting on why. I live in a jurisdiction where I can buy the US and non-US versions of such ETFs and I'm curious as to why the two versions exist and why one might choose one over the other. My question is so long because I tried to go through all the reasons that I think don't apply so that people can counter my current understanding or respond with additional information that I'm unaware of. Apr 13 at 14:34
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The most important points are regulation and taxation.

The European variants usually have UCITS tagged on at the end of the name. But I find it hard to believe any institutional investor would believe that the UCITS versions of such major ETFs were dramatically safer (as a result of conforming to UCITS) and therefore worth the increased TER.

To my knowledge it is not allowed to sell the US versions in the EU. So every investor would need to jump through the hoop of opening a US account which may be non-trivial. Furthermore this make you responsible for all the intricacies of taxation. On the other hand, buying the UCITS version through my German broker means that I have to do nothing to get taxation right. (Except for telling my broker once how much of my tax-exempt 800€ they should use)

For institutional investors this is probably similar. The cost is brought up by the customer anyway and 0.07% is not a big deal in a world where a large number of investors is still paying something like 5% load fee and 2% TER for active management mutual funds. And to be honest, in Europe there are not that many pension funds as this is mostly done by governments. And those that exist to a vast majority subscribe to high-fee active management and often wrap insurance products around their stock market investment to increase their share.

Regarding the domicile of funds...this is often Ireland due to a double-taxation agreement with the US that makes those funds slightly more tax-efficient than the ones registered in Luxembourg.

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  • The PRIIPS regulations don't require that issuers, like iShares, open EU domiciled ETFs in order for European's to buy them. They just require KID (KIID for UCITS). And PRIIPS doesn't really apply for professional and institutional investors so there are no hoops to be jumped through (and such investors are presumably buying US-based assets anyway, e.g. basic equities like APPL). Until PRIIPS it was also trivial for EU-based retail investors to manage the taxation aspects of such ETFs (this was already covered by bilateral and multilateral agreements). Apr 13 at 14:21

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