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In this article, we'll take a look at why investors may want to consider building exposure to the region into their portfolios, as well as the easiest ways to do so.
In particular, we'll look at the region's common social and economic model, the Nordic 30 Index that categorizes the region's largest companies, and a U.S.-traded ETF that provides exposure to the region.
Nordic Model for Socioeconomic Success
Nordic countries share common social and economic rules even though they are separate states. These shared rules are described by the so-called Nordic model, which includes support for a universalist welfare state that's focused largely on maximizing labor force participation and promoting equality across ages, genders, and incomes.
The Economist described the Nordic countries as "probably the best governed in the world" in 2013, even though the country's large public sector accounts for about 30% of its workforce. In fact, the United Nation's Happiness Report 2013 showed that the happiest countries are located in Northern Europe with Denmark - one of the Nordic countries - topping the list.
Nordic 30 Index & the Region's Largest ADRs
The Nordic 30 Index is the most popular stock market index in the region ran by both the FTSE and STOXX.
The index tracks the performance of the 30 largest and most liquid companies in Sweden, Denmark, Norway and Finland, enabling investors to quickly and easily access the region's most popular companies using various exchange-traded funds ("ETFs") or mutual funds.
Some of the most popular American Depository Receipts ("ADRs") in the index include:
- Nokia (NYSE: NOK) - Nokia is a Finnish company that manufactures mobile devices and networks, including a popular line of mobile phones used around the world.
- Ericsson (NASDAQ: ERIC) - Ericsson is a Swedish company providing communications networks, telecom services, and support solutions, popular for its mobile networks worldwide.
- Volvo (OTC: VOLVY) - Volvo is a Swedish automobile manufacturer focused on commercial transportation solutions, like trucks, buses, construction equipment, engines and drive systems.
Investing in the Nordic Region with ETFs
Exchange-traded funds ("ETFs") provide investors with an easy way to gain exposure to the Nordic region without the hassle of purchasing foreign securities. By holding a diverse basket of Nordic stocks in a single U.S.-traded security, investors benefit from instant diversification and enhanced liquidity compared to buying direct at a reasonable expense ratio.
The most popular Nordic region ETF is the Global X FTSE Nordic Region ETF (NYSE: GXF) which tracks the Nordic 30 index. With an expense ratio of 0.5%, the ETF has approximately $61 million in total assets under management as of March 2014. Investors should be aware, however, that it is 11.09% exposed to Novo Nordisk, 30.94% exposed to financials, and 54% exposed to Sweden.
Key Takeaway Points to Remember
- The Nordic - or Scandinavian - region in Northern Europe consists of Denmark, Finland, Iceland, Norway and Sweden along with their associated territories.
- These countries embrace a common Nordic model that involves competitive capitalism with a large public sector element that provides a universal welfare state.
- The easiest way to invest in the Nordic region is through ETFs like the Global X FTSE Nordic Region ETF (GXF) which tracks the Nordic 30 Index consisting of the region's largest stocks.
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