The Definitive Scandinavian ETF Guide (EWD, GXF, EDEN)
By any metric, things are ugly in Europe and poised to get
worse. Exchange traded funds tracking the various Euro Zone
constituents paint the ugly picture.
Here's a hypothetical situation that illustrates how dangerous
investing in Europe is these: Assume an investor bought a basket
of six country-specific Europe ETFs a month ago. Three ETFs
tracking PIIGS countries, one each for France and Germany and one
tracking a central European nation. Let's say that basket was
comprised of the following: The iShares MSCI Germany Index Fund
), the iShares MSCI France Index Fund (NYSE:
), the iShares MSCI Italy Index Fund (NYSE:
), the iShares MSCI Spain Index Fund (NYSE:
), the Global X FTSE Greece 20 ETF (NYSE:
) and the iShares MSCI Austria Investable Market Index Fund
The average loss among that motley crew is 17.3%. Conversely,
the ProShares UltraShort MSCI Europe (NYSE:
) has surged 32% over the same time.
Unfortunately, the Euro Zone's sovereign debt crisis is
probably a contagion and it has dragged equity markets lower even
in the European countries that had the good sense to not
participate in the ill-conceived euro common currency. Yes, even
the Scandinavian countries.
While there's no ignoring the fact that Scandinavian equities
and their corresponding ETFs have been tumbling recently, there
are still opportunities among some of these countries, implying
investors would be wise to remember that not all of Europe is as
bad as say Greece or Spain. With that, use this guide to navigate
the major Scandinavian ETFs.
iShares MSCI Finland Capped Investable Market Index Fund
A few disclaimers to start. First, if the ETFs featured in this
guide were ranked in order of preference, the iShares MSCI
Finland Capped Investable Market Index Fund would NOT be at the
top list. That leads us to the second disclaimer: Finland uses
Another thing to remember about EFNL: Nokia (NYSE:
) is the ETF's top holding at 10.5% of the fund's total weight.
Nokia is sort of like the Research In Motion (Nasdaq:
) of Finland except for the part where RIM shares have performed
better than Nokia's.
In fairness to EFNL, which debuted in January, it should be
Finland has a reasonable debt/GDP ratio and is
one of the remaining members of the AAA credit rating club
. The fund has been hit with significant redemptions though. In
late February, EFNL had $2.8 million in AUM. As of June 1 that
number was below $2.1 million.
iShares MSCI Denmark Capped Investable Market Index Fund
When we profiled EDEN
shortly after its late January debut
we noted Denmark has its fiscal house in order relative to Euro
Zone members, of which is not one. Denmark's public debt load
will reach 44.6% of the economy this year, compared with an
average of 90.4% in the 17-member euro region, Bloomberg
reported, citing the European Commission earlier this year.
EDEN's sector composition is conservative with 37.1% of the
fund's weight going to health care names. In terms of individual
holdings, Danish pharma giant Novo Nordisk (NYSE:
) represents 23.6% of the fund's weight. Home to 33 stocks, EDEN
has over $2.5 million in AUM and charges 0.53%.
The biggest issue with Denmark and EDEN is one U.S. investors
are all too familiar with: Unemployment. Denmark has a U.S.-esque
8.1% jobless rate.
iShares MSCI Sweden Index Fund (NYSE:
The iShares MSCI Sweden Index Fund hasn't exactly been a peach in
the past month, tumbling almost 16%, a slide that indicates even
the largest Scandinavian economy hasn't been impervious to the
Euro Zone's ills. That slide also means EWD now has a yield north
of 4%, but let's not forget
Sweden is another AAA country and that rating is
not in any jeopardy at the moment
Sweden posted first-quarter GDP growth of 0.8%, which may not
sound like much, but economists expected 0.2% and GDP growth is
hard to find anywhere in Europe in these days. Consumer
confidence has risen in Sweden for three consecutive months,
indicating the $500 billion economy is more resilient than
investors are currently giving it credit for.
For now, EWD remains infected by the Euro Zone virus, but if
it falls to and holds support at $22, that could be a fine point
to get into Sweden game. As Sweden's greatest export, Abba, once
crooned "Take A Chance On Me."
Global X Norway ETF (NYSE:
The Global X Norway ETF has a
stealth rivalry going with another Norway ETF
, but no matter which Norway fund investors decide to roll the
dice on, they're arguably getting exposure to one of the more
dependable developed Europe economies.
NORW is down 17% in the past month and much of that decline is
attributable to falling oil prices. Then again, Norway's status
as a major non-OPEC oil producer has served the country well.
This is another AAA-rated country with a fair debt/GDP ratio and
the world's second-largest sovereign wealth fund. Norway also has
one of the highest standards of living in the world and was
recently ranked the second-happiest country on earth behind
Norway also has
low unemployment and has been on the receiving
end of some of the bank deposits that have recently been
departing Greece and Spain
. Consider NORW or its rival the...
iShares MSCI Norway Capped Investable Market Index Fund
ENOR, which also debuted in late January, is tad more expensive
than NORW with an expense ratio of 0.53% compared to 0.5% for its
rival. On the other hand, the iShares fund is home to 50 stocks,
compared to 30 for the Global X fund.
ENOR is almost 51% allocated to the energy sector while NORW's
energy weight is just over 49%. Each devotes more than 28% of
their respective weights to Statoil (NYSE:
) and SeaDrill (NYSE:
). Over the past month, NORW has outperformed ENOR by 90 basis
Global X FTSE Nordic Region ETF (NYSE:
For those that just can't decide on a country-specific
Scandinavian fund, the Global X FTSE Nordic Region ETF is the
place to turn. Sweden dominates this ETF with a weight of 46.1%
while Norway and Denmark both receive allocations north of 20.5%.
Finland gets the rest.
GXF's sector composition is an important factor. Relatively
light energy exposure (9.1%) means the fund can be paired with
the likes of ENOR or NORW for those that really want to ratchet
up their Scandinavian exposure. In addition, GXF's 30% weight to
financials, its largest sector allocation, could prove useful
going forward if fleeing deposits from the PIIGS continue to find
their way north.
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