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BANKING

What you need to know about investing in index funds in Spain

Index funds are considered a safer and more passive way of investing for those with little financial knowledge. However, understanding what they are, the best funds available, and how they're taxed in Spain is key before investing your money.

Published: 12 March 2024 11:30 CET
Updated: 16 March 2024 05:55 CET
What you need to know about investing in index funds in Spain
The IBEX 35 stock market index at Spain's principal stock exchange in Madrid. Photo: GABRIEL BOUYS/AFP.

What are index funds?

According to a basic definition by Banco Santander, “index investment funds are collective investment undertakings whose investment policy strives to mimic a certain index.”

What does that actually mean? And what is being mimicked here? Let’s look at an example. An index fund tracking the Vanguard Global Stock Index, for example, will put together an asset portfolio that essentially mirrors, or is similar to, at least, the Vanguard portfolio, in terms of composition. 

So that means that if the Vanguard Index has any major changes in terms of portfolio makeup, the fund manager (more on the best of those in Spain below) changes your index fund to reflect that change.

Often in Spain index funds would be linked to the IBEX 35, Spain’s main stock exchange, but many people invest in regional or global funds too. Besides that, index funds basically function in the same way as other funds: the money in the fund is used to buy and sell assets to make profit.

Generally speaking, the benefits of index fund investing are their low cost, the little financial knowledge and time investment required from the investor, and their diversification. The drawbacks are the lack of downside protection when there are losses, the lack of choice in index composition, and the fact that your investments can’t ‘beat’ the market.

READ ALSO: The best high-yield savings accounts in Spain

How profitable can index funds be?

Owing to the fact that the entire point of index funds is to mimic a particular index, the way we think about profitability is slightly different than with other forms of investment.

In that sense, there’s really no such thing as a ‘good’ or ‘bad’ index fund based on its performance. How well the index fund performs is better thought of as how well it replicates the index it is supposed to be mimicking.

According to Rankia, a Spanish investment service and comparison site, index funds vary wildly in terms of returns, but compound annualised returns ranging from as low as -40 percent in the worst case examples to 55 percent profits in the best.

Obviously, how much you make in cash terms depends on the size of your original investment in the fund.

Can you invest in foreign index funds in Spain?

Yes, you can. In fact many people do, and fund managers often recommend doing so.

In Spain, the main fund managers that offer index funds include iShares, EBN Bank, Amundi, Vanguard, Pictet, Bankinter, Caixabank, BBVA, and Credit Suisse.

Which are the best index funds to invest in from Spain?

Most index funds are grouped on a regional basis, so there are several funds that mirror European markets, North American markets, the Pacific region markets, and so on, as well as broader global index funds.

According to Rankia, some of the best global index funds to invest in from Spain include:

Fidelity MSCI World Index Fund P-ACC-EUR
Total Expense Ratio (TER): 0.12 percent
3-year return: 11.73 percent

Vanguard Global Stock Index Fund EUR Acc
TER: 0.18 percent
3-year return: 11.63 percent

Amundi Index MSCI World – IE (C)
TER: 0.19 percent
3-year return: 11.51 percent

Vanguard ESG Developed World All Cap Equity
TER: 0.20 percent
3-year return: 9.29 percent

Vanguard Global Small-Cap Index Fund
TER: 0.29 percent
3-year return: 7.37 percent

Amundi Index FTSE EPRA NAREIT Global – AE (C)
TER: 0.34 percent
3-year return: 3.17 percent

How are index funds taxed in Spain?

Under the Spanish tax system, index funds are taxed as savings income as part of the IRPF (Spain’s income tax) and are included as capital gains and losses, as if they were any other type of stock market shares or investment product.

However, one of the advantages of index funds over other forms of investment is that if you sell one index fund in order to buy another, you don’t pay for the capital gains obtained because it is considered a transfer from one fund to another and is therefore exempt from taxation.

This makes it one of the best investment options if you want to get a higher return on your earnings via compound interest because you can take advantage of these capital gains to reinvest them instead of paying them in taxes.

As index funds in Spain are taxed in the same way as any other investment products that is subject to savings rates, they are taxed at the following rates:

19 percent for capital gains of less than €6,000

21 percent for capital gains between €6,000-€50,000

23 percent for capital gains in excess of €50,000

READ ALSO: Bank overdraft in Spain: What are the risks and penalties?

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BANKING

Banking in Spain: Why BBVA’s takeover of Sabadell may never happen

The hostile takeover bid launched by Spanish banking giant BBVA for its smaller rival Banco Sabadell has sparked a political uproar in the country. However, the deal faces some key challenges before it can become a reality.

Published: 10 May 2024 16:57 CEST
Banking in Spain: Why BBVA's takeover of Sabadell may never happen

Sabadell refusal

BBVA is offering an exchange of one if its shares for every 4.83 Sabadell shares, a 30-percent premium over the April 29 closing price of both banks.

Sabadell has said this “significantly undervalues” its value. It accuses BBVA of breaching takeover rules since it provided “incomplete information that could affect the market”.

Spain’s fourth-largest bank has reported its concerns to stock market regulator CNMV.

BBVA Chair Carlos Torres Vila played down this opposition on Thursday, saying he had been contacted by shareholders in favour of the deal.

But Sabadell’s capital is held by multiple of investors, none of them holding more than 5.0 percent of the lender, making the takeover unpredictable since many players must be convinced.

Government opposition

Economy Minister Carlos Cuerpo has warned his leftist government “will have the last word when it comes to authorising the operation” which he said would be “potentially damaging” for the economy.

Cuerpo did not detail what steps the government can take but Labour Minister Yolanda Diaz said Spanish banking supervision law allowed it “to authorise or not authorise this type of operation”.

This hostile takeover bid, the first in the Spanish banking sector in nearly four decades, is “extremely risky” for the economy and against the country’s “interests”, she added.

READ ALSO: How would the BBVA takeover of Sabadell affect customers in Spain?

Regional hostility

The takeover bid has also come up against hostility in Catalonia, the northeastern region where Sabadell originated and has a strong presence, and the neighbouring region of Valencia where it currently has its headquarters.

They both fear a reduction in the number of branches, which they say would be detrimental to businesses and individuals.

Pere Aragones, a moderate separatist who heads the regional government of Catalonia, has said the takeover bid could “weaken the economic weight” of the region.

The issue has been in focus in the final days of campaigning for Sunday’s regional election in Catalonia, with parties across the political spectrum voicing concerns.

“For some time, there’s been a strategy to kill the Catalan banking industry,” former Catalan president Carles Puigdemont, the head of hardline separatist party JxCat who led Catalonia’s failed 2017 secession bid, wrote on X.

The hostile offer “must be responded to with full force, with all the law and with all reason,” he added.

Union concerns

Spain’s two main trade union confederations, the UGT and Comisiones Obreras, have also sounded the alarm over possible job losses. Workers must not “pay the cost of this operation,” the UGT warned.

Asked about these concerns at a news conference on Thursday, BBVA Chair Carlos Torres Vila ruled out any “traumatic measures” for employees and highlighted the career opportunities the merger would create.

But he did not rule out any staff cuts.

BBVA employs around 121,000 people worldwide, while Sabadell has some 19,000 workers.

Supervisory rules

The main obstacle for BBVA lies with supervisors. The operation needs the green light from the European Central Bank, Spanish stock market regulator CNMV and the competition authorities in the countries where the two lenders operate.

The Spanish banking sector is already highly concentrated, with 56 percent of the market in the hands of three groups — Santander, BBVA and Caixabank.

This “rate would rise to 64 percent” if BBVA’s takeover bid is successful, which could lead to a “significant reduction in competition,” according to broker XTB.

The operation will take up to eight months to complete, according to BBVA.

“There is going to be a war of attrition,” economist Javier Santacruz told Spanish public radio, adding BBVA will have to do a great deal of “persuasion” to be successful.

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