Trying to buy US ETFs? Here are ways to do it.

There is a lot of talk about US ETFs, which unfortunately we can't buy. But is this really the case? Can we really not buy them? Since there are quite a few questions on this topic, I have decided to present you today with a few ways you can buy these ETFs.

But before we start introducing the different options, we first need to explain why brokers actually prohibit us from buying US ETFs. It's not really the brokers who are to blame, but the European Union, which, by passing one law, has made it impossible for all European investors to buy US ETFs. In fact, in early 2018, the European Union issued a law that requires makers or sellers of investment products to provide retail investors with a brief (maximum three-page) document summarizing key information about those products, called a "key information notice." The KID should include, inter alia, a definition of the type of investor for whom the product is intended, the risk and return profile of the product, the cost of the product and information on contacts to whom investor complaints can be directed. Simply put, the Americans would have to create this document for all US ETFs according to EU guidelines.

This law would presumably protect European retail investors. The European Union hoped that this would force the Americans to rectify the situation and complete this document. The problem is that we are an awfully small pond for America, so nobody has even bothered to do anything about it. In short, the Americans are pretty much on the hook as to whether or not Europeans can buy their ETFs. We can argue about whether the law is good or bad for retail investors. But that's not what we're here for, let's leave that discussion to some gentlemen in the pub having a beer. We are here to explain how to legally circumvent this regulation and buy US ETFs.

European variations

This is probably the easiest option for European retail investors, and it's also the only option most people know. In short, if I can't buy the US original, I'll buy a European copy. All you have to do is search the internet for an American ETF that you would like to invest in. Then all you have to do is copy the name of that ETF into a search engine and add UCITS ETF. CAUTION you have to put the full name in the search engine, not the ticker. But even then, you still don't win. There is not as much choice from the European options as there is from the US ones. In short, not every ETF has a European variant either, so expect to run into ETFs that don't have a European variant.

Setting up a US broker

Apparently this regulation only applies to European brokers. Because if you open an account with a US broker, you can normally buy US ETFs at will at this point. It's proven to work. So if you want to buy genuine US ETFs, this is probably the easiest way to get to those ETFs.

Of course, it's not free and it also has some kinks, and one only. Since you're not a resident of the United States, there's very little likelihood that a major US broker will open an account for you with them. So here too we searched with a few people, and found one big, and more importantly also well-known and solid US broker, where it was no problem to open an account without being a US resident. That broker is Tasty Works.

So, if you want to buy really genuine US ETFs, this is the option that requires the least capital, yes there is another option that is very similar, we will introduce that in a moment. One more thing I might point out. Please don't expect any hot user interface, and don't expect free shares as European brokers tend to do.

Setting up an account with a Czech broker

I haven't researched this method in detail as to why it is possible, but in short some readers have written under some of my posts that they own US ETFs with Czech brokers. So this is another proven option. So I know of two brokers in the Czech Republic that allow this, Fio e-broker, and Patria. You can buy purely US ETFs at these two companies.

But it is up to everyone to consider this option, because this option can be quite expensive in terms of the fees that we pay for buying and selling shares, or in our case ETFs. It is common knowledge that Czech brokers have relatively high fees on US financial instruments. However, if one does not want to open an account with a US broker, this may be a much simpler option for them, but as I say, it is a good idea to study the fees beforehand and then consider whether it is worth it for your volume.

Assignment via PUT option listing

Here, this option already requires a larger account and capital. On the other hand, this way you can buy ETFs at any broker that allows options trading, specifically on US underlying. Trading options on US ETFs is not restricted or prohibited by the European Union. And there is just a small loophole that we can legally take advantage of by simply writing (selling) a PUT option that obligates us to take the underlying asset at the agreed price when the terms of that contract are fulfilled. But beware, one option represents 100 ETF units, so please keep that in mind.

Let's take a smaller example. Suppose we want to buy from a broker that allows options on US ETFs, for example the $JEPI+0.4% ETF , which I recently wrote about. This ETF is trading at $55. So we write (sell) a PUT option with a strike price of, say, $50 and an expiration date of March 6, 2023. This means that if the ETF price is below USD 50 on March 6, 2023, the trader who bought the option from us will most likely exercise his right to require us to buy back 100 ETFs at USD 50 each. Thus, this is an obligation and no restrictions apply. So we will have $5500 taken out of our account, and we will have 100 ETFs of $JEPI+0.4% added to our account.

This method has one rather large pitfall, and that is that you can only acquire ETFs in increments of 100 using this method. So please keep that in mind before you start throwing PUT options into the market as a sense of divestment. You can get yourself into trouble by doing this.

Summary

We have presented here a total of 4 methods of legally bypassing European regulations regarding US ETFs. There are many more of these methods of course, but they either require very high capital or they are methods where you don't own the ETF in question, but rather speculate on the price going up or down using various instruments. These are then methods more for traders.

  • Come to think of it, with the European variant method, while we don't have to deal with anything, we have relatively limited choice, and much less liquidity than with the US originals.
  • Choosing an American broker does require you to open a new account with an American broker, but on the other hand, this option is less expensive, in terms of fees, than with Czech brokers.
  • Whilechoosing a Czech broker may seem like a much simpler option compared to a US broker, we must not forget that Czech brokers generally have high fees on US instruments. This may not be worth it for everyone.
  • Assigning from a PUT option listing could be a good option for people with higher capital who have a broker that allows option listings on US underlying, but don't want to set up a new broker. However, these people have to take into account that they will have to buy the underlying in 100's.

From what has been written here, setting up a US broker seems to me to be the most suitable and best option for a Czech retail investor . Why? Because there are acceptable fees, so you can buy even in smaller volumes. At the same time, it is a classic purchase, so you only need as much capital as you want to buy, and you have a fairly wide selection of all US ETFs.

So if you don't want to buy the European versions of these ETFs, you probably have no choice but to go with a US broker. Because with Fio you would also have to buy ETFs in larger volumes to make it worthwhile in terms of fees. And I don't suppose there will be many people among us who would have a lot of capital available for option writes, and subsequent assignments.

WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.

Sources:

https://www.cnb.cz/cs/dohled-financni-trh/legislativni-zakladna/sdeleni-klicovych-informaci-priips/


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