France houses the seventh-largest economy in the world and the third-largest economy in the European Union. In fact, the country holds some of the largest insurance, airline, cosmetic, luxury, and energy companies. These attributes make it one of the most attractive investment destinations in the world for international investors, particularly in Europe.
Those looking to invest in France have several different options, ranging from exchange-traded funds (ETFs) to American Depository Receipts (ADRs). In this article, we’ll take a look at some of the benefits and risks of investing in France, as well as the best ways to build exposure into your portfolio using the many options available to international investors.
We will also discuss why investors may want to consider investing in France and some common ways to gain exposure using U.S.-traded securities. Investors should take all of the following benefits and risks into account before committing any capital.
- The advantages of investing in France are its large, well-developed economy and its many large companies.
- The primary risk of investing in France is its membership in the EU, which means it’s tied to other, less stable economies.
- ETFs like the MSCI France Index ETF (EWQ) and ADRs are easy ways to invest in France.
Benefits of Investing in France
With its large economy, France is a relatively safe place to put money.
France houses one of the largest economies in the world with a very developed securities market. In contrast to some emerging and frontier markets, this usually means less geopolitical risk and volatility.
France houses many of the world’s largest companies, which usually adds to the lower volatility. Larger companies typically have lower volatility and more predictable long-term earnings power. The risks of investing in France include:
Risks of Investing in France
As the European Union’s sovereign debt crisis has shown, the country’s monetary ties to others in the E.U. have created some key risks.
France is the third-largest member of the European Union, which means that it may be responsible for funding large parts of bailouts. During the European sovereign debt crisis, this liability became very apparent.
France has many socialist tendencies that may inhibit some businesses from competing. For instance, the country has a 35-hour workweek and a 62-year-old retirement age, which are lower than in many other developed countries.
How to Invest in France with ETFs
Exchange-traded funds (ETFs) offer investors an easy way to build diversified French exposure into their portfolios. By holding a basket of securities across many industries, ETFs are generally considered less risky than individual stocks with lower beta coefficients. But unlike mutual funds, they can be traded anytime throughout the day like a stock.
The primary ETF used to invest in France is the MSCI France Index Fund ETF (EWQ), which attempts to mimic all French publicly traded securities.
Some popular ETFs to invest in France are:
- MSCI France Index ETF (EWQ)
- SPDR DJ Euro STOXX 50 ETF (FEZ)
- MSCI EMU Index Fund (EZU)
- Franklin FTSE France ETF (FLFR)
- iShares Europe ETF (IEV)
Alternative Methods to Invest in France
Investors look for more direct exposure to French companies may want to look at American Depository Receipts (ADRs) or direct investment on the Euronext Paris. While there are many French ADRs, investors should note that many of these trade on the OTC Markets pink sheets, which means they may be less liquid than NYSE or NASDAQ traded companies. The OTC pink sheets may be relatively illiquid, meaning that you may have difficulty in finding ready buyers of these holdings when you are ready to sell.
Some popular ADRs for investing in France include:
- Veolia Environment (VEOEY)
- AXA (AXAHY)
- L’Oreal (LRLCY)
- Suez (SZSAY)
- LVMH (LVMUY)