The Definitive Scandinavian ETF Guide (EWD, GXF, EDEN)
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 (NYSE: EWG), the iShares MSCI France Index Fund (NYSE: EWQ), the iShares MSCI Italy Index Fund (NYSE: EWI), the iShares MSCI Spain Index Fund (NYSE: EWP), the Global X FTSE Greece 20 ETF (NYSE: GREK) and the iShares MSCI Austria Investable Market Index Fund (NYSE: EWO).
The average loss among that motley crew is 17.3%. Conversely, the ProShares UltraShort MSCI Europe (NYSE: EPV) 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 (BATS: EFNL) 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 the euro.
Another thing to remember about EFNL: Nokia (NYSE: NOK) 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: RIMM) 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 noted that 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 (BATS: EDEN) 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: NVO) 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: EWD) 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: NORW) 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 Australia.
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 (BATS: ENOR) 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: STO) and SeaDrill (NYSE: SDRL). Over the past month, NORW has outperformed ENOR by 90 basis points.
Global X FTSE Nordic Region ETF (NYSE: GXF) 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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