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European equities have a large weight in the developed and total world stock markets. Consequently, European equity markets play an extremely important role for investors looking to diversify in developed markets outside the United States. This article looks at the performance and diversification benefits of US-based European equity ETFs from January 2002 to May 2023 and compares them to US and developed market equity ETFs. We find that European equity market ETFs are highly correlated with US and developed market ETFs. As far as performance is concerned, the absolute- and risk-adjusted performance of European market equity ETFs was similar to the developed equity markets. However, both the European market and developed market ETFs underperformed the US equity markets over the period of our study. Overall, there are limited diversification benefits from investing in European ETFs for US investors.
Kanuri et al. (Wed,) studied this question.