France To Introduce Tax Cuts: ETFs To Buy

French president Emmanuel Macron’s government is mulling over introducing tax cuts for the wealthy as early as next year.

Although there have been warnings of an 8-billion euro deficit in the budget, prime minister Edouard Philippe has said that it is possible to reduce budget deficit below Brussels’ target of 3% of economic output, while simultaneously cutting taxes. He stated that it is possible to achieve the target by cutting public spending. The prime minister expects reducing tax burden by approximately 7 billion euros from 2018.

This move is expected to lure entrepreneurs and investors to the country. It goes without saying that introducing pro-business reforms tops Macron’s to-do list. The president is moving ahead with it despite the looming budget deficit problem the country faces and Philippe’s earlier announcement of delaying tax cuts to tackle the deficit issue.

Per Financial Times, under the new tax regime, investment holdings would be excluded from France’s wealth tax and a new flat 30% tax on dividends and other investment earnings would be introduced. The prime minister also added that he plans to reduce corporate taxes to 25% from the current 33.3% by 2022 (read: ETF Asset Report: Developed Markets Rule in Q2).

Moreover, France is still in the race to lure banks attempting to flee London because of Brexit. Philippe proposed to abolish the highest bracket of payroll taxes on employees and cancel the extension of 0.3% tax on financial transactions (read: How to Build a Winning ETF Portfolio for Second-Half 2017).

Let us now discuss a few ETFs that provide high exposure to the French economy (see all European Equity ETFs here).

iShares MSCI EMU ETF EZU

This ETF is a play on developed European economies using the common currency with a focus on large and mid-cap equities.

It has AUM of $13.22 billion and charges 48 basis points in fees per year. The fund has a 32.11% allocation to France, 29.30% to Germany and 10.97% to Netherlands (as of July 10, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 20.81%, 15.24% and 13.31% exposure, respectively (as of July 10, 2017). Total SA (PA:TOTF), Sanofi (PA:SASY) SA and Siemens AG (DE:SIEGn) are the top three holdings of the fund, with 2.55%, 2.48% and 2.36% exposure, respectively (as of July 10, 2017). It has returned 17.86% year to date and 24.71% in the last one year (as of July 11, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

SPDR Euro STOXX 50 ETF FEZ

This fund is appropriate for investors looking to gain diversified exposure to equities of the euro zone.

It has AUM of $4.17 billion and charges 29 basis points in fees per year. The fund has a 35.77% allocation to France, 33.21% to Germany and 10.88% to Spain (as of June 9, 2017). From a sector look, Financials, Industrials and Consumer Discretionary are the top three allocations of the fund, with 23.11%, 14.40% and 11.18% exposure, respectively (as of July 10, 2017). Total SA, Siemens AG and Sanofi SA are the top three holdings of the fund, with 4.50%, 4.37% and 4.08% exposure, respectively (as of July 10, 2017). The fund has returned 16.05% year to date and 22.80% in the last one year (as of July 11, 2017). It has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard FTSE Europe ETF VGK

This fund seeks to invest in developed European economies and is one of the most popular funds in its space.

It has AUM of $20.5 billion and charges 10 basis points in fees per year. The fund has a 28.9% allocation to the U.K, 14.8% to France and 14.5% to Germany (as of May 31, 2017). From a sector look, Financials, Industrials and Consumer Non-Cyclical are the top three allocations of the fund, with 21%, 14% and 13% exposure, respectively. Nestle SA (SIX:NESN), Royal Dutch Shell (LON:RDSa) Plc and Roche Holdings AG are the top three holdings of the fund, with 2.6%, 2.2% and 2% exposure, respectively (as of May 31, 2017). It has returned 15.23% year to date and 17.48% in the last one year (as of July 11, 2017). It has a Zacks ETF Rank #1 with a Medium risk outlook.

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