skip to Main Content
Menu
PRIIPs: Why Europeans Can’t Buy Fancy US Funds Anymore

PRIIPs: Why Europeans can’t buy fancy US funds anymore

Post Series: European acronyms

Most retail investors that trade on their own already noticed since the beginning of 2018. As a European, it’s not possible to buy US Exchange Traded Funds (ETFs) anymore. If you were trying to find out how to buy US ETF in Europe, I hate to burst your bubble but there is no straight forward for this after a new regulation (no, options aren’t straightforward). The main culprit? One acronym: PRIIPs.
PRIIPs stands for Packaged Retail and Insurance-based Investment Products. Phew, that’s a mouthful, isn’t it? No wonder the abbreviation is used most of the time.

But what do these fancy words mean? According to Investopedia:

The term PRIIPs, created by the European Commission to regulate the underlying market, is defined as any product that is manufactured by the financial services industry, to provide investment opportunities to retail investors, where the amount repayable is subject to fluctuation because of exposure to reference values or the performance of underlying assets not directly purchased by the retail investor.”
Investopedia.com

Investopedia gives a clear explanation on the definition of PRIIPs, but it doesn’t answer why it exactly impacts European investors.
JustETF has a solid article answering the why. The article has a clear message and you quickly notice this. It answers why US ETF’s aren’t a good idea to begin with, and why PRIIPs is thus good for the retail investor. I will not argue about whether it’s a good or bad thing. It’s too late anyway and as a retail investor, we aren’t able to make a change anyway.

Instead, I’ll provide the main reason for the unavailability and some alternatives to the most bought US funds.

The impact of PRIIPs

PRIIPs requires funds, so both active and passive, to provide a Key Information Document (KID). This KID enables investors to asses the risk, reward and costs in one swift read.
Because it’s a European regulation, European funds were ready by the time the new rules came into effect. Without it, they wouldn’t be allowed to be public after all.
US-based ETFs didn’t bother to comply as their focus is the US. Creating this EU approved documentation wasn’t and still isn’t a priority for them, nor will it ever be. It’s also very likely a money thing, why allow your european investors the access to a cheap tracker when you can just let them enjoy a more expensive one?
Unfortunately, as a result of this decision, EU brokers don’t make the US-funds that don’t offer a KID to their clients available.

Read something else ...
Stocks Chart

Decoding International Stock Market Investments

With the disclaimer out of the way, it's time to make room for a guest…

read more
... Or continue below

The Alternatives

Since brokers aren’t allowed to make US funds available the following question needs answering: what is the alternative to these very large and highly liquid funds?

For most US funds there is a European equivalent. Naming all of them is outside the scope of this article, but below are some of the most popular funds and their European counterpart. Of course, these EU-based funds aren’t nearly as big and might be a tad bit more expensive, but there is no alternative for the retail trader. We’ve got to make do with what we have.

Concerns

Since European traders are forced into lesser known funds and thus more often than not, smaller funds, you do have to take their size into consideration.
The popular American trackers don’t have this concern and it becomes apparent when you look at the size of the below-mentioned funds.
Let’s take IBB and SBIO. IBB has a hefty 8.15 billion dollars in Assets. SBIO? 345.48 million dollars. Bit of a difference no? Of course, biotech is still pretty popular, so even the lesser known Invesco NASDAQ Biotech fund still has a comfortable amount of Assets. Others on the other hand, not so much. Take the SPDR MSCI Europe Telecommunications UCITS ETF. It currently sits at 5.93 million EUR in assets. This is very low. I’m not saying it’ll disappear tomorrow, but it certainly isn’t a fund you want to consider if you want to focus on telecommunications.

For the ones mentioned below their size isn’t a concern just like with most fonds, but you have been warned.

US-based

EU alternative

SPDR S&P 500 ETF – SPY

iShares MSCI Emerging Markets ETF – EEM

Financial Select Sector SPDR Fund – XLF

iShares Nasdaq Biotechnology ETF – IBB

iShares Russell 2000 ETF – IWM

All the above-mentioned ETFs have a link to justETF that has a large (public) database of various trackers that are located in Europe. An additional benefit is that they allow you to filter on the fund’s domicile country.

I highly recommend you take a look on their site if you are interested in a certain fund.

Take a look at my portfolio to see what kind of funds I have that do follow PRIIPS.

Follow me

Mr. FightToFIRE

Writer at Fight To FIRE
I'm the owner and the main writer of FightToFIRE, a personal finance blog focussing on Financial Independence and Retiring Early. During the regular working hours, I'm a developer for a major financial institution in Belgium. During my off-hours, I write. do some weight lifting and other stuff to keep me healthy and fit.
Mr. FightToFIRE
Follow me

Latest posts by Mr. FightToFIRE (see all)

This Post Has 3 Comments
  1. This may be fine for EU Citizens that don’t have US Citizenship; but if you do (so you have tax liability in the US) and you buy any EU based Fund or ETF, you are exposed to IRS PFIC rules that are extremely laborious (therefore expensive) and error prone (therefore dangerous) and likely wipe out any potential gains just by taxation and compliance fees.

    On the other hand PRIIP seems to also apply to EU residents that do have US citizenship (even temporary expats, which makes no sense), so the US Brokerages refuse to sell them ETFs or Funds citing missing KIDs for any of the US based products.

    What alternatives would you recommend to an Expat US citizen living in Europe ?

    Thank you !

Leave a Reply

Your email address will not be published. Required fields are marked *

Back To Top
×Close search
Search