No Refuge With Nordic ETFs

In previous bouts of weakness in European equity markets, investors could count on Scandinavian stocks and the corresponding U.S.-listed exchange traded funds being, at the very least, less bad. There have been times when ETFs tracking Eurozone equities plummeted while funds such as the iShares MSCI Sweden ETF EWD stood tall.

That has not been the case this year as several of the major ETFs tracking Scandinavian economies have performed notably worse than the iShares Europe ETF IEV and the iShares MSCI Eurozone ETF EZU.

For example the $341.1 million EWD, the lone ETF dedicated to Swedish stocks, is off 7.1 percent to start 2016 compared to an average loss of about 6.3 percent for EZU and IEV. To be fair, EWD has been less volatile than the two diversified Europe ETFs.

“Scandinavia has been in the headlines periodically in terms of potential terror threats in the past several quarters regarding ISIS, but to a much lesser degree than say France or Belgium, which are also of course represented by investable iShares single country ETFs. It is worth noting that the largest fund mentioned above in terms of asset size, EWD, traded at a multi-year low just yesterday before rebounding to some extent this morning,” said Street One Financial Vice President Paul Weisbruch in a note out earlier this week. 

Speaking of new lows, EWD found its way to one on Friday. The Global X MSCI Norway ETF NORW barely avoided such a fate, finishing the week less than half a percent above its 52-week low.

With a 14.7 percent weight to Norway's state-run oil giant Statoil Asa STO and an overall energy sector allocation of 29.3 percent as of the end of the third quarter, the ETF's largest, NORW has been stymied by tumbling oil prices and the volatility that accompanies those slumping crude prices. NORW's year-to-date volatility of 31.6 percent is more than six times that of EWD and nearly triple that of the Global X FTSE Nordic Region ETF GXF. 

Among ETFs that track stocks in developed markets that are major oil producers, only the iShares MSCI Canada ETF has performed worse than NORW over the past year. With Norway's economy flailing, some market observers believe the central bank there will cut interest rates at some point in the current quarter with little to no possibility of higher interest rates until at least 2018.

As for Sweden's central bank, the Riksbank, the world's oldest central bank has a benchmark lending rate of -0.35 percent, indicating it is close to running out of tools with which to prop up the Nordic region's largest economy. Earlier this week, the Riksbank gained authority to intervene in the currency market to prop up Sweden's currency in an effort to boost inflation.