Why choose ETFs for your PEA?
ETFs (Exchange Traded Funds) offer an excellent opportunity to invest at low cost in the largest stock market indices. Combined with the tax advantages of the PEA, they constitute a powerful investment strategy for the long term. ETFs allow instant diversification, reduced fees, and high liquidity, making them a wise choice for investors of all levels. In this guide, we will explore in detail the best PEA-eligible ETFs, their advantages, and how to effectively integrate them into your investment strategy.
Open PEA on Boursobank (€180 offered) →What is a PEA-eligible ETF?
ETFs, also known as trackers, are index funds that replicate the performance of a benchmark index, such as the CAC 40 or the S&P 500. They allow investors to gain exposure to a broad basket of stocks in a single transaction, thus offering instant diversification. This passive investment approach aims to replicate the performance of the index rather than attempting to beat it, which generally results in lower management fees than actively managed funds.
To be eligible for the PEA, an ETF must meet specific conditions related to French regulations. Mainly, it must invest in stocks of companies with their registered office in the Eurozone or the European Union. However, there are ETFs that use ingenious methods, such as synthetic replication, to track non-European indices while remaining eligible for the PEA. This technique allows investors to access global markets while benefiting from the tax advantages of the PEA.
There are three main categories of PEA-eligible ETFs: firstly, those that invest directly in European indices, such as the Euro Stoxx 50 or the CAC 40. Secondly, ETFs that invest in an index composed of at least 75% European companies, thus offering some geographical flexibility. Finally, ETFs using synthetic replication, which can track global indices such as the MSCI World or the S&P 500 while remaining compliant with PEA requirements. This diversity of options allows investors to build a truly globally diversified PEA portfolio.
Why invest in ETFs through a PEA?
Advantageous taxation: PEA vs. Regular Trading Account
One of the main attractions of investing in ETFs through a PEA lies in its significant tax advantages, particularly when compared to a regular trading account. After a holding period of 5 years, the income generated by your investments in a PEA is only taxed at the level of social contributions, i.e., 17.2%. This reduced taxation contrasts sharply with the standard taxation of capital gains on a trading account. Indeed, on a trading account, capital gains and dividends are subject to the flat tax of 30% (12.8% income tax + 17.2% social contributions) from the first euro of gain, regardless of the holding period. To illustrate this difference, let's take an example: Suppose a gain of €10,000 realized on ETFs: - In a PEA (after 5 years): you will only pay €1,720 in social contributions, keeping €8,280 net. - On a trading account: you will have to pay €3,000 in taxes (30% flat tax), keeping only €7,000 net. The difference of €1,280 represents a tax saving of 42.7% in favor of the PEA! Moreover, the PEA allows for the capitalization of dividends without immediate taxation. This means that dividends paid by ETFs can be automatically reinvested, thus fully benefiting from the effect of compound interest. On a trading account, each dividend distribution is taxed immediately, reducing the capital available for reinvestment. It is important to note that the PEA has constraints, including a contribution ceiling of €150,000 and a recommended minimum holding period of 5 years to fully benefit from the tax advantages. The trading account, on the other hand, has no contribution limit or imposed holding period, offering more flexibility but at the cost of less advantageous taxation. In conclusion, for long-term ETF investment, the PEA presents a considerable tax advantage compared to the trading account, allowing to maximize net returns and accelerate capital growth thanks to the capitalization of untaxed dividends.
A passive stock market product with reduced fees
ETFs stand out for their nature as a passive stock market product, which translates into remarkably low management fees, generally less than 0.5% per year. This reduced cost structure is a major advantage compared to actively managed funds, whose fees can easily exceed 1.5% to 2% per year. Over the long term, this difference in fees can have a considerable impact on the overall performance of your investment. Indeed, lower fees mean that a larger portion of returns stays in your portfolio, accumulating and compounding over time. Moreover, the passive management of ETFs eliminates the risk of significant 'tracking error', ensuring that the performance of your investment closely follows that of the underlying index, without the potential deviations related to the decisions of an active manager.
An instrument that often outperforms active managers
One of the most compelling arguments in favor of ETFs is their ability to regularly outperform actively managed funds over the long term. This superiority is mainly explained by two factors: reduced fees and market efficiency. The lower fees of ETFs give them an immediate performance advantage over active funds. Moreover, the efficient market hypothesis suggests that it is extremely difficult for active managers to consistently beat the market after taking fees into account. Studies have shown that over a 15-year period, more than 90% of actively managed equity funds underperform their benchmark index. By investing in ETFs, you ensure that you capture the performance of the market as a whole, without the risk of underperformance associated with active stock selection.
An ETF self-adjusts to reflect market evolution
An often underestimated feature of ETFs is their ability to self-adjust according to market developments. This property is particularly advantageous for long-term investors. When a company sees its market capitalization increase or decrease significantly, or when new companies emerge while others decline, the underlying index (and consequently the ETF) automatically adjusts to reflect these changes. This means that your investment always remains aligned with market leaders, without requiring intervention on your part. For example, an ETF tracking the S&P 500 will have naturally reduced its exposure to declining companies while increasing its allocation to growing companies over time. This self-adjustment feature ensures that your portfolio remains modern and relevant, capturing emerging market trends without additional effort on your part.
The best PEA ETFs for optimal diversification
To build a well-diversified PEA ETF portfolio, it is crucial to select funds covering different geographical areas and economic sectors. Here is a selection of the best PEA-eligible ETFs, classified by geographical area, accompanied by an analysis of their characteristics and advantages:
World ETF: A global exposure
World ETFs offer diversified exposure to international stock markets, often forming the cornerstone of a well-balanced portfolio. Among the most popular options are the BlackRock MSCI World PEA, the Lyxor MSCI World PEA, and the Amundi MSCI World. These ETFs track the MSCI World index, which includes over 1,500 large and mid-cap companies in 23 developed countries. They offer instant diversification across different sectors and regions, with a strong weighting towards the United States (typically around 60-70% of the index). These ETFs are particularly suitable for investors seeking global exposure with a single investment. Their management fees are generally competitive, ranging between 0.25% and 0.38% per year, making them attractive for long-term investment.
US ETF: Capturing American growth
ETFs focused on the US market allow PEA investors to access the world's largest economy and its innovative companies. Notable options include the Amundi MSCI USA ESG Leaders, which focuses on US companies with good environmental, social, and governance practices. The Amundi ETF PEA NASDAQ-100 offers exposure to the 100 largest non-financial companies listed on the Nasdaq, with a strong technology orientation. The Lyxor PEA S&P 500 replicates the famous S&P 500 index, offering broad exposure to the US market. These ETFs are particularly interesting for investors who believe in the continued growth of the US economy and its tech giants. Their management fees generally vary between 0.15% and 0.35% per year, making them competitive for US market exposure.
Emerging Markets ETF: Seizing growth opportunities
The Amundi MSCI Emerging Markets is an excellent choice for investors looking to expose their PEA to emerging markets. This ETF tracks the MSCI Emerging Markets index, which covers countries such as China, South Korea, Taiwan, India, and Brazil. Investing in emerging markets offers high growth potential, albeit accompanied by higher volatility. This ETF allows for geographical diversification of a portfolio beyond developed markets, offering exposure to rapidly expanding economies and innovative companies in fast-growing sectors. With management fees of about 0.20% per year, it represents a cost-effective option to access these dynamic markets. It's important to note that the allocation to this ETF should generally be more limited in a portfolio, due to its higher volatility.
Europe ETF: The heart of your PEA
European ETFs naturally form an essential part of a PEA portfolio, given the geographical restrictions of this tax wrapper. The BlackRock EuroStoxx 50 offers exposure to the 50 largest companies in the Eurozone, ideal for capturing the performance of European blue chips. The Lyxor Immobilier Europe focuses on the European real estate sector, offering interesting sector diversification. The BNP Paribas Stoxx Europe 600 covers a broader spectrum with 600 European companies of all sizes, offering more diversified exposure to the European market. These ETFs generally have management fees between 0.10% and 0.40% per year. They are essential for building the core of a PEA portfolio, offering stability and regular dividends, while benefiting from European economic growth.
France ETF: Betting on the domestic market
ETFs focused on the French market, such as the Lyxor CAC 40, the BNP CAC 40, and the Amundi ETF CAC 40, offer exposure to the 40 largest companies listed on the Paris Stock Exchange. Investing in these ETFs allows you to benefit from the growth of French national champions, which are often major players on the international stage. These ETFs are particularly interesting for investors who believe in the strength of the French economy and who wish to have a significant part of their portfolio invested locally. They generally offer attractive dividends and have very low management fees, often below 0.25% per year. Moreover, investing in the domestic market can offer some psychological comfort, as investors are more familiar with the companies they are investing in.
PEA Sector ETFs: Refining your strategy
Sector ETFs allow investors to target specific industries, thus offering the possibility to refine their investment strategy or bet on long-term trends. Among the most interesting options are the Lyxor Stoxx Europe 600 Healthcare, which offers exposure to the European healthcare sector, a defensive area with growth potential linked to the aging population. The Lyxor Stoxx Europe 600 Real Estate focuses on European real estate, offering exposure to a tangible and generally stable sector. The Lyxor Stoxx Europe 600 Automobiles & Parts targets the European automotive industry, a cyclical but crucial sector for the economy. The Amundi Euro ISTOXX Climate Paris Aligned PAB is an interesting choice for environmentally conscious investors, as it focuses on companies aligned with the objectives of the Paris Climate Agreement. These sector ETFs allow investors to overweight certain sectors in their portfolio based on their convictions or economic trends. For example, an investor who believes in the growth of the technology sector could add a tech ETF to their portfolio, while another seeking protection against inflation might opt for a real estate ETF. It's important to note that sector ETFs can be more volatile than broader ETFs, and should generally represent a limited part of a diversified portfolio.
Conclusion: Building a balanced PEA ETF portfolio
PEA-eligible ETFs offer an excellent opportunity to diversify your portfolio while benefiting from significant tax advantages. By judiciously combining global, US, European, and sector ETFs, you can build a robust portfolio tailored to your long-term investment objectives. The key is to find a balance between geographical diversification, sector exposure, and risk management. Remember that stock market investment involves risks, and it's important to adapt your strategy to your investor profile and time horizon. Finally, regularly reassess your allocation to ensure it remains aligned with your financial goals. With a thoughtful and disciplined approach, ETFs in a PEA can be a powerful tool for building your long-term wealth.
Open a PEA in 10min on Trade Republic →Frequently Asked Questions about PEA ETFs
Why prioritize investing in ETFs through a PEA?
Investing in ETFs through a PEA offers several major advantages. Firstly, it combines the efficiency and diversification of ETFs with the tax benefits of the PEA. ETFs offer broad and diversified exposure to markets at low cost, while the PEA allows for tax exemption on capital gains after 5 years of holding (excluding social contributions). Moreover, the PEA structure allows for the capitalization of dividends without immediate taxation, thus maximizing the effect of compound interest. This synergy between ETFs and PEA creates an ideal environment for long-term investment, allowing to optimize capital growth while minimizing the tax burden.
Should ETFs be prioritized within a PEA or a life insurance policy?
Although ETFs are available in both PEAs and life insurance policies, the PEA generally presents more pronounced advantages for ETF investment. The PEA offers a wider choice of ETFs, particularly physical replication ETFs which are often considered more transparent and less risky than their synthetic counterparts. Moreover, management and brokerage fees in a PEA are generally lower than those in a life insurance policy, which is crucial for preserving returns over the long term, especially with low-cost products like ETFs. The taxation of the PEA becomes particularly advantageous after 5 years of holding, with a total exemption on capital gains (excluding social contributions), while life insurance requires 8 years to reach its tax optimum. However, life insurance may be preferable in certain cases, particularly for estate planning or for investors who have already reached the PEA ceiling. Ultimately, the choice between PEA and life insurance will depend on your personal situation, investment objectives, and time horizon.
What are the main differences between a PEA and a trading account for ETF investment?
The main differences between a PEA and a trading account for ETF investment are:
1. Taxation:
- PEA: Tax exemption on capital gains after 5 years (excluding social contributions of 17.2%)
- Trading account: Subject to the 30% flat tax on capital gains and dividends
- 2. Contribution limit:
- PEA: Limited to €150,000 in contributions
- Trading account: No limit
3. Investment universe:
- PEA: Restricted to European stocks and eligible ETFs
- Trading account: Allows investment in almost all financial products without geographical restriction
4. Holding period:
- PEA: Encourages long-term investment with optimal tax benefits after 5 years
- Trading account: No minimum holding period
5. Withdrawal flexibility:
- PEA: Withdrawals before 5 years may result in its closure
- Trading account: Allows withdrawals at any time without consequences for the account
6. Dividend reinvestment:
- PEA: Dividends can be reinvested without immediate taxation, favoring capitalization
- Trading account: Dividends are taxed as soon as they are received
The choice between PEA and trading account will therefore depend on your investment horizon, financial goals, and need for flexibility.
