Nordic Market Overview
ETFs with exposure to Nordic countries have been among the top performing ETPs this year. Since January, Sweden’s XACT OMXS30 has risen 17.7%, Finland’s Seligson OMX Helsinki 25 Indeks has climbed 26.5% and the XACT Nordic 30 has gained 22.4% (all figures as of October 31st). These eye-popping returns compare with a 4.6% advance for the MSCI World Index and a 1.4% loss for the EURO STOXX 50.
While politicians and central bankers around the world have been struggling to keep economies from shrinking, Sweden, Norway, Denmark and Finland have been enjoying a remarkable recovery, boosted by surging exports to emerging markets. They have also been shielded from the negative effects of the European sovereign debt crisis because of their relatively healthy public finances--they have Europe’s smallest deficits--and their currency independence--save for Finland which is part of the euro zone.
Fiscal and monetary flexibility has enabled policymakers to use an arsenal of tools to combat the economic slowdown, and they have been quite successful at it, as evidenced by the return of optimism to the markets. Analysts have raised profit estimates for Denmark, Sweden and Finland more than 20% this year, twice the rate of the US and six times the average for companies in the euro area.
So, as a European investor, how can you take advantage of the opportunities that these countries offer? Unfortunately, there are a rather limited number of options available at the moment and all but one are traded only on their domestic exchanges. The only ETF offering exposure to the region that is listed outside of the region is the Amundi MSCI Nordic ETF, which tracks the 70 largest companies in Sweden, Norway, Denmark and Finland. This fund is listed on Euronext Paris and charges a total expense ratio of 0.25% per annum. Investors seeking either alternative pan-regional ETFs or single-country ETFs would have to look to northern Europe.
The Offerings
The most developed and active market in the region is Sweden with 22 listed ETFs offering exposure to the Nordic markets. Norway comes second with 6 ETFs while Finland is home to only one. There are no ETFs listed in Denmark.
Interestingly, all 35 products are exclusively provided by local banks. First mover XACT, which is owned by Sweden’s Handelsbanken, dominates the region with a total of EUR 1.7 billion of assets under management. Norway’s DnB NOR follows with assets of EUR 174 million, while Swedish rival HQ has assets of EUR 13 million. Currently, there is no foreign issuer competing with their Nordic-centred offerings.
This lack of interest from large issuers--notably iShares, Lyxor and db x-trackers-- might be explained by a lack of client demand. For the last few years, European providers have been busy launching products that give access to more sought-after geographies, like emerging markets. Bringing products to market that offer exposure to Nordic countries has been less of a priority. But this might soon change as some providers, including db x-trackers, have started to look towards offering ETFs with a Nordic focus. In fact, it might not be long before we see a proliferation of these ETFs, as demand from both private and institutional investors increases. Henrik Noren, managing director of XACT, believes that there is room for more ETPs in the region, particularly in the commodity and fixed income space. XACT plans to step up the pace of product development. The Swedish provider will also consider the opportunity of cross-listing some of its existing ETFs on the main European stock exchanges, including the Deutsche Borse and the London Stock Exchange. This move, if it materialises, would allow foreign investors to gain exposure to Nordic countries more easily and probably more cost-effectively too. Meanwhile, investors who are interested in a specific Nordic country (Sweden, Norway, Finland or Denmark) or in the whole region can choose amongst the ETFs listed below.
See ETFs with exposure to Sweden, Norway, Finland and Denmark, or with pan-Nordic focus.
Currency Exposure – A Word of Caution
Foreign investors should be mindful that currencies can act as a double-edged sword on returns. A strengthening krone can enhance take-home returns while a weakening krone will weigh on the performance of krone-denominated investments. The Swedish, Norwegian and Danish krones took a serious beating during the global financial crisis, with declines of up to 20% against the euro. However, they all have rebounded strongly since, helped in large part this year by the clubbing the Euro took during the worst of the debt crisis.
