My investment research often takes me to ground zero as I look for new and exciting opportunities. In mid-April my travels took me to Scandinavia to research the four countries that make up the region: Denmark, Finland, Norway and Sweden.
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As an investment option, the Scandinavian region (also referred to as the Nordic region) is often overlooked. Even though the region has its fair share of technology companies as well as niche sectors such as timber, the region is viewed as one of little growth potential. Granted you cannot compare the Scandinavian region to Brazil or China, however there are investment opportunities in the region for investors willing to think outside the box.
Two global players in the mobile phone sector are located in Scandinavia, LM Ericsson Telephone (Nasdaq:ERIC) and Nokia (NYSE:NOK). ERIC, based in Sweden, is the world's largest network equipment vendor, ahead of a joint venture between NOK and Germany's Siemans (NYSE:SI). The first-quarter earnings report for ERIC was not overly impressive as sales declined once again. However, the company's guidance was cheered by Wall Street and the stock rallied 10% the day after the announcement, bringing it to a new 18-month high.
As ERIC rallied, NOK was hit by earnings and fell to a new six-week low in late April after the first-quarter report disappointed analysts. The company announced it is cutting prices on its mobile phones by up to 10%. There was also news out the company delayed the release of a new version of its operating system, Symbian. This is a tale of two closely-related companies moving in opposite directions. (For more, see Dial Up Choice Telecom Stocks.)
Denmark and Norway
Two countries that get little press in the region are Denmark and Norway; however they also have two of my favorites stocks in Scandinavia. Novo Nordisk (NYSE:NVO) is a pharmaceutical company that concentrates on two areas, diabetes care and biopharmaceuticals. With diabetes becoming a major concern in the U.S. and abroad, the need for drugs to help combat the outbreak and symptoms are in high demand. The chart of NVO is one of the best on Wall Street and hit a new all-time high in April. (For more, see Stocks On Drugs: What It Takes To Get High.)
The Norwegian company that catches my eye is Statoil (NYSE:STO), an oil and gas drilling and exploration company that concentrates on the Scandinavian region and has operations abroad. On top of its oil and natural gas reserves, the company also operates 2,000 full-service fuel stations in the region. Besides the fact that the region is interesting, the energy stocks are set to continue to outperform, and with a dividend yield of 4.1%, STO is an attractive opportunity. (For more, see Why Dividends Matter.)
Scandinavia via ETF
The lone ETF to capture the four countries in the region is the Global X FTSE Nordic ETF (NYSE:GXF). The ETF is heavily weighted in Sweden (43%), followed by Denmark (20%), Finland (18%) and Norway (18%). As far as sectors, the financial services and technology combine to make up approximately half of the ETF. The largest holding with 9% of the allocation is Novo Nordisk.
The index that the ETF tracks is newer and therefore does not have the historical data to compare the region with other countries. There is the MSCI Nordic Countries Index that has been in existence for over 10 years. The average annual return for the index over the last five years is 5.16%, making it one of the best performing MSCI developed markets regional indices. (For more, see Going International.)
Aside from stocks there are the currencies of the region. As a traveler, it is frustrating to have four different currencies for the four countries. The only ETF that gives investors an opportunity to invest directly in a Scandinavian currency is the Rydex CurrencyShares Swedish Krona ETF (NYSE:FXS). Over the last two years the currency has been moving in a similar pattern to the euro, however in 2010 the krona has stabilized and the outlook is promising. If the U.S. dollar continues its long-term downtrend, which looks likely, and the euro has a cloud over it, the Swedish krona could come out of this as a winner into 2011.
The Bottom Line
The Nordic region is an opportunity to diversify a portfolio with below-average risk and return that should over time be able to at a minimum keep pace with its developed market peers. Think outside the box and look to diversify into Scandinavia. (For more, see Broadening The Borders Of Your Portfolio.)
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