Study: European UCITS ETFs beat US equivalents

QuantRoutine ran a 15-year back-test using real price data and compared three pairs of ETFs that give similar exposures: S&P 500, All-World and MSCI World. The platform found the European UCITS products outperformed their US-domiciled counterparts over the period even when the UCITS funds showed higher total expense ratios (TER).

The measured annual outperformance was small but persistent in the sample. CSPX outpaced VOO by 0.06 percentage points per year. VWCE beat VT by 0.68 percentage points annually. IWDA exceeded URTH by 0.34 percentage points each year. The data set for the test came from Alpha Vantage price records covering the comparative 15-year span.

Tax treatment was a central factor in the analysis. For European investors, a tax treaty that reduces US withholding tax from 30% to 15% lowers the annual drag from dividend withholding. Using a 1.5% dividend yield as an example, a 15% withholding tax produces a 0.225% annual drag on returns; a 30% tax produces a 0.45% drag.

QuantRoutine also highlighted other costs that can affect net returns: currency conversion fees, execution costs, tracking efficiency and fund scale. The platform recommended addressing FX and execution differences first, then checking withholding tax and treaty status, next reviewing tracking difference, and only then focusing on TER.

Francesco, founder of QuantRoutine, expected US funds to lead in the test but found the opposite across all pairs. He noted that many European investors follow US-focused content that emphasises visible metrics such as TER, while withholding tax and FX costs are less visible in comparison tools.

VanEck’s EU chief executive, Martijn Rozemuller, argued that tracking difference shows the combined impact of fees and operational factors and can give a clearer picture of what investors actually receive. Morningstar’s Jose Garcia-Zarate advised that investors start by confirming the exposure they want and then apply a consistent due diligence process.

The report and its authors state that headline expense ratios are only one of several variables that determine net ETF returns. QuantRoutine has published the full back-test results and methodology for review.