The cheapest ETFs to play European stock rally

European shares are close to making new highs with, the STOXX 600 index of the largest firms (including British ones) at 550 points, just below the record set in March before Trump’s tariff announcements rattled markets. 

This year, the index is up 16% in sterling terms, including the positive impact of dividends, while over the five years the total return is 67%. That compares with a five-year return of 73% for the FTSE All-Share and 102% for the S&P 500. 

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European shares are rising for three key reason: government spending, cheap valuations, and rising interest from overseas. 

On spending, led by Germany, the penny has finally dropped that European countries need to spend more on defence as well as investing in crumbling infrastructure. For example, Germany has changed its constitution to allow for more fiscal freedom and has announced a €500 billion (£432 billion) fund to be spent on infrastructure and defence. 

Valuations on European shares are also attracting buyers. The index yields about 2.5% and the price-to-earnings ratio is just 17.7x, according to fund manager BlackRock. This compares with 28.8x for the US market. In the face of geopolitical and economic uncertainty, investors can protect themselves by not overpaying for assets, and also seeking a return from dividends.

Finally, investors have woken up to the risks of too much exposure to American shares, and the US dollar. Trump shook markets in April when he announced tariffs on all the country’s trading partners, but the outcome has been better than expected, with trade deals signed between the US and key markets, such as the European Union and the UK.

However, the realisation that politics in America could have such a large impact on a portfolio has prompted more diversification, with European shares becoming one of the beneficiaries. 

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The STOXX Europe 600 index is seen as a key benchmark for the performance of European shares, representing the 600 largest stocks by market cap across 17 European countries. 

The cheapest way to track this index is with the Amundi Stoxx Europe 600 ETF C GBP (LSE:MEUD), with a yearly ongoing charge of just 0.07%. There is also the Invesco STOXX Europe 600 ETF GBP (LSE:S600), with an ongoing charge of 0.19% and Xtrackers Stoxx Europe 600 ETF 1C GBP (LSE:XSX6) for 0.2%. 

However, while the STOXX Europe 600 is closely followed as a benchmark for the general performance of European stocks, investors can get alternative exposure to Europe through several other indices, such as the EUROSTOXX 50 index. Partly, this is because it has no UK exposure. 

This index is composed of the 50 largest stocks in the eurozone area only. As a result, unlike the STOXX Europe 600 index, it has no exposure to the UK or Switzerland. This is trading near all-time highs, and has risen about 10% so far in 2025. 

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There are many low-cost options. The cheapest include HSBC EURO STOXX 50 ETF GBP (LSE:H50E) and Invesco EURO STOXX 50 ETF GBP (LSE:SX5S), both charging just 0.05%. 

For investors wanting European exposure, there are several other options, among them the popular MSCI Europe index. The cheapest way to track this index is with the HSBC MSCI Europe ETF GBP (LSE:HMEU), which includes around 450 equities and costs 0.1% in fees. 

However, this index also includes non-eurozone countries, including the UK, which is its biggest weighting, accounting for nearly 20% of the index, similar to the STOXX Europe 600 index. Investors with already significant UK exposure should keep this in mind. 

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For those who want European stock exposure without the UK, a solution would be the MSCI Europe ex-UK index, which holds roughly 350 stocks. This can be tracked via the iShares MSCI Europe ex-UK ETF (LSE:IEUX), which has an ongoing charge of 0.4%.

Another option is the FTSE Developed Europe ex UK Index. This also includes large and mid-cap exposure, with around 450 holdings. This index can be tracked using the Vanguard FTSE Developed Europe ex UK UCITS ETF (LSE:VERX), which has a very reasonable ongoing charge of just 0.10%.