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A Flight to Europe ETF Safety Lands in Scandinavia


The Global X FTSE Nordic Region ETF (GXF) is down less than 2% year-to-date, confirming the fund’s status as one of the more stable bets among Europe exchange traded funds. Stability from Nordic stocks and ETFs is nothing new. At the height of the European sovereign debt crisis, Nordic countries excluding Iceland, offered investors looking to maintain Europe exposure shelter from the storm.

The iShares MSCI Sweden ETF (EWD) has tumbled nearly 5% this year, but the iShares MSCI Denmark Capped ETF (EDEN) has benefited from its large health care exposure this year on its way to a gain of more than 17%. That despite some macro headwinds for the lone Denmark ETF.

Western sanctions against Russia have proven problematic for EDEN. Danish farmers are major exporters to Russia and Danish banks have significant exposure to those farmers. Falling commodities prices coupled with the Russian sanctions are leading to an increased amount of sour agriculture loans in Denmark, relevant to EDEN because the ETF has a large weight to the financial services sector.

“One argument in favor of including Nordic funds in a portfolio: The region’s biggest economies—Sweden, Denmark and Norway—all have their own currencies, even though Sweden and Denmark are members of the European Union. That sets them apart from countries in the eurozone because the Nordic economies don’t depend on the European Central Bank to help stimulate their economies, says Todd Rosenbluth, a senior director at S&P Capital IQ,” reports Tanzeel Akhtar for the Wall Street Journal.

Some of Sweden’s larger companies are struggling due to weak demand from Europe, the country’s largest export market, as the krona currency appreciated against the euro. However, lower central bank rates has helped stimulate household spending.

The Swedish central bank recently cut its benchmark rate below zero for the first time and started buying bonds to combat deflationary pressures. However, if the krona continues to strengthen, the Riksbank could be forced to implement more aggressive measures. [Loose Monetary Policy Could Lift Sweden ETF]

Riksbank expects the economy to expand 2.7% this year and 3.3% in 2016. Meanwhile, consumer prices could only inch up 0.1% in 2015, well below the central bank’s 2% target. [Rate Surprise in Sweden]

Including Nordic ETFs in portfolios “insulates them to some extent from the economic and financial-market fallout from the travails of eurozone countries, such as the recent crisis triggered by the drawn-out Greek debt drama. Rolf Lönnqvist, an ETF specialist at Swedish bank Nordnet, says having its own currency helped Sweden’s economy during that crisis,” according to the Journal.

Global X FTSE Nordic Region ETF


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.