Though the Euro zone is finally on its way to recovery, the region is still grappling with deflationary risks, double-digit unemployment and sovereign debt issues. However, one area that has successfully navigated through this turmoil is the Nordic region.
The Nordic region which makes up 7.65% of the Euro zone’s population and 11.41% of its economy, comprises Finland, Sweden, Norway and Denmark (read: Euro Zone Recovery Puts Ireland ETF in Focus).
The region has one of the highest standards of living in the world. Moreover, these Nordic countries are ranked among the highest in the world in terms of global competitiveness and business practices.
These countries are running current account surpluses and have an outstanding internal and external communications system together with a skilled labor force.
Sweden – the biggest economy in the Nordic region – is experiencing a speedy recovery led by improving consumer spending and growing investment. The economy expanded at a healthy rate of 1.7% in the fourth quarter of 2013 compared with 0.5% growth in the third quarter of 2013. The economic recovery is expected to accelerate with 2.5% growth pegged for this year and 3.3% for 2015.
Moreover, after four long years of stagnation, Denmark managed to come out of recession last year. The country has lower budget deficits, less inequality and a high ratio of working class to total population.
The area is witnessing improving fixed capital investment, and rising exports on the back of strengthening external demand. Further, the Nordic region enjoys ample foreign-exchange reserves. Also, Norway is expected to see its economy expand by 2.7% this year (read: EDEN: A Solid Pick Among Europe ETFs).
Thus, given the strong fundamentals in the Nordic region, a look at the top ranked European ETF focusing on this space could be a good idea to capture the improving fundamentals, especially based on the Zacks ETF Ranking system (see all European equitie ETFs here).
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the context of our outlook on the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other ETFs with a similar level of risk.
Using this strategy, we have found one ETF – Global X FTSE Nordic Region ETF (GXF - ETF report) – which has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating. The details are highlighted below (see all the Top Ranked ETFs here).
GXF in Focus
Launched in August 2009, GXF is a passively managed ETF and tracks the FTSE Nordic 30 Index before fees and expenses. The index seeks to provide exposure to the largest and most liquid companies in Sweden, Denmark, Norway and Finland.
The fund holds a small basket of 30 stocks, with the top 10 holdings forming around 55% of the fund assets – suggesting the fund is quite concentrated among its top 10 holdings.
Novo Nordisk dominates the fund forming 11% of the total fund assets, followed by H&M Hennes & Mauritz AB (6.75%) and LM Ericsson Telefon (6.60%).
Sector-wise, the top three sectors – Financials (30.94%), Industrials (19.22%) and Health Care (11.11%) – together form around 60% of the portfolio. However, the fund has the least exposure to Materials (2.15%) and Utilities (1.71%).
Country-wise, Sweden has the top allocation in the fund, with more than half of the fund assets devoted to this region, followed by Denmark (18.33%), Norway (14.79%) and Finland (13.49%).
The fund has a decent track record in terms of performance. The fund returned around 22.4% last year, while gaining 35% in the last three years. Also, the fund is up 5.5% since the start of the year and has an annual dividend yield of 2.45%. The fund charges 50 basis points as fees to investors.
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