Nordic equity ETFs offer a quality bet on European recovery

Dec 16th, 2015 | By | Category: Equities

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Although their economies are relatively small when compared to the European powerhouses such as Germany, France and the United Kingdom, exchange-traded funds with targeted exposure to the Nordic region (especially Sweden, Denmark and Norway) may provide significant benefits to investors looking to exploit a potential European recovery.

Nordic equity ETFs add quality factor to European recovery bet

The Nordic countries are also among the best macroeconomic performers in the Western world over the previous decade.

Firstly, each of the three countries possesses its own currency and do not rely on the stimulative monetary policies of the European Central Bank to prop up their economies. This has also afforded the region a greater degree of protection from economic and financial turmoil caused by the fundamental flaws of the currency bloc’s grossly inefficient public sectors. The recent Greek debt crisis that played out during the summer is testament to this.

The Nordic countries are also among the best macroeconomic performers in the Western world over the previous decade. GDP growth is above average for the Eurozone, unemployment is low, and constant trade surpluses in recent years (Iceland is an exception) has allowed the region to significantly pay down their foreign debt. Furthermore, all three countries currently boast AAA credit ratings. Sweden, in particular, has the lowest national debt-to-GDP ratio, stable inflation, and a robust banking system.

All countries have well established manufacturing and services sectors, and the Nordic region is one of the richest energy sources in the world. Apart from fossil fuels such as oil and gas, the Nordic countries are also able to exploit renewable energy sources such as water, wind, bio-energy and geothermal heat.

Talking to the WSJ, Rolf Lönnqvist, a stock broker and ETF specialist at Swedish bank Nordnet, recommends the iShares MSCI Sweden ETF (EWD), because “it is the largest and most heavily traded ETF from a single Nordic nation, a convenient and safe way to invest” in the recovery of European economies. He adds that the ETF has a relatively low expense ratio of 0.48% and an attractive dividend yield, currently around 4.65%.

European-listed ETFs focusing on the Nordic region include:

The Amundi MSCI Nordic ETF (CN1) tracks the MSCI Nordic Countries Index, capturing the performance of approximately 85% of the Scandinavian equity market by market capitalisation. The index comprises around 80 holdings across Denmark, Finland, Norway and Sweden. Listed on the London Stock Exchange, NYSE Euronext Paris, Borsa Italiana, Deutsche Börse and SIX Swiss Exchange, the fund carries a total expense ratio of 0.25%.

Other providers with relevant ETFs include Swedbank, which offers an ETF tracking Swedish equities; and XACT Fonder, the largest provider of Nordic-focused ETFs in Sweden. The latter has a range of funds tracking Swedish and Norwegian equities.

Some of the options for US investors include:

The iShares MSCI Sweden ETF (EWD) tracks the MSCI Sweden Index. The fund is the largest and most traded ETF providing single country exposure within the Nordic region, providing a safe and convenient way to invest in the recovery of European equities. Listed on the NYSE Arca, the fund carries a total expense ratio of 0.48%.

The Global X FTSE Norway 30 ETF (NORW) tracks the FTSE Norway 30 Index, representing the performance of the 30 largest and most liquid Norwegian securities listed on the Norwegian Oslo Bors Stock Exchange. The fund is listed on the NYSE Arca and carries a total expense ratio of 0.50%.

The Global X FTSE Nordic Region ETF (GXF) tracks the FTSE Nordic 30, representing the performance of the 30 largest and most liquid companies traded on the Danish, Finnish, Norwegian and Swedish Stock Exchanges. Listed on the NYSE Arca, the fund carries a total expense ratio of 0.50%.

The iShares MSCI Norway Capped Investable Market Index ETF (ENOR) tracks the MSCI Norway IMI 25/50 Index, reflecting the performance of the Norwegian stock market. Listed on the BATS Exchange, the fund carries a total expense ratio of 0.53%

Investors should be aware that, despite the robust sovereign debt scenario and strong macro-economic performances, the region is by no means a safe haven of equity exposure. Perhaps surprisingly, the MSCI Nordic Index fell 53.5% during 2008 in the wake of the global financial crisis while the FTSE Developed Index fell 40.3%. That being said, the countries do provide a viable option for investors looking for European exposure, and the current dynamics of the region may help investors capture a superior degree of quality exposure within their portfolios.

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