While most investors have chosen to focus on the problems facing Europe, those willing to go against the grain can find unique prospects in the region. When people look for economic powerhouses, Scandinavia doesn't usually come to mind; however, the nations of Sweden, Norway, Finland and Denmark are just that. These nations of just 24 million people have a combined gross domestic product of more than $1.5 trillion. Having weathered the global economic crisis better than most, these often ignored countries might be the best way to play Europe's recovery and the growth in emerging markets.
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The Land of the Vikings
Despite their small size, the Nordic nations have a lot going for them in terms of investment merit. The region shows strength in exports and is known for its value-added industrial components. The types of high-engineered goods that emerging markets like China and India need to grow and build out their infrastructure with. The expanse is also rich in commodity-related products and natural resources. Norway is the world's third largest oil exporter after Saudi Arabia and Russia. These exports have helped the region become negative net debtors. The Scandinavian countries' cash reserves, assets in pension funds and stakes in companies more than cover their obligations. Norway alone ran an 11% budget surplus in 2009.
Scandinavia's stronger economies also highlight stable tax and fiscal policies compared with other parts of Europe. Additionally, by not adopting the euro currency (Finland aside), the region has more control over its own monetary policy and stimulus measures. As sovereign-debt issues continue to plague the rest of Southern Europe, those in the North can rest easy and focus on returning to pre-recession growth
And growing they are. Private spending is on the rise in the region, with Sweden growing 3.8% and 3.2% for Norway in the third quarter of 2010. Both Sweden and Denmark were two of the best performing markets in Europe in 2010. During the third quarter of this year, Sweden's GDP increased by 6.9% and nation is forecast to grow by 2.6% in 2011. The rest of the region is poised for similar results.
Finally, many of the stocks in the region are trading at cheaper metrics than their U.S. counterparts, but pay higher dividends. The Nordic regions forward P/E is around 13, while the U.S. trades for around 15.
Investing in the Nordic Region
Scandinavia's fiscally strong and stable developed economies make them a perfect portfolio addition to help mitigate Europe's risk. Investors wanting to add exposure to the region have plenty of choice, as many of its multinationals like Ericsson (Nasdaq:ERIC) and Novo Nordisk (NYSE:NVO) do trade on U.S. exchanges. However, investors may be better suited in one of the exchange-traded funds that track the region.
The Global X FTSE Nordic 30 ETF (NYSE:GXF) is the broadest fund that tracks the group, holding 30 of the largest companies across the four nations. As the largest economy of the four, Swedish firms understandably make up most of the fund's assets at 48%. Top holdings include Nokia (NYSE:NOK) and Volvo AB (OTCBB:VOLVY). The fund has performed extremely well since inception, gaining almost 30% in just over a year. Investors can bet directly on Norway and its energy companies like Statoil (NYSE:STO) via the Global X FTSE Norway 30 ETF (NYSE:NORW).
As the big boy on the block in Scandinavia, Sweden can be accessed through the iShares MSCI Sweden Index (NYSE:EWD). The fund yields 2.16% and holds more than 33% of assets in industrials. To boot, the Swedish krona has been one of the best performing currencies as investors sought protection from the euro. The CurrencyShares Swedish Krona Trust (NYSE:FXS) allows investors to bet on the krona's rise.
For investors looking to escape the carnage in Europe, the often ignored Nordic region offers a perfect way to play growth in both developed and emerging markets. Rich in natural resources, industrial expertise and fiscal conservatism, Scandinavia is a perfect complement to a developed market portfolio. The previous funds along with stocks like shipper TORM A/S (Nasdaq:TRMD) can provide access. (To learn more, see ETFs Vs Index Funds: Quantifying The Differences.)
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