ETFs To Invest In The Three Most Competitive Countries In The World

by on September 9, 2010 | ETFs Mentioned:

Earlier today the World Economic Forum released its yearly Global Competitiveness Report, which ranks 139 countries in the world on a variety of factors the Forum believes determines the level of productivity of a country, including the set of institutions, policies, and government programs. The Forum believes that this rate of productivity “sets the sustainable level of prosperity that can be earned by an economy. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens.” Not surprisingly, the countries at the top of the list tend to be rich, market-driven economies known for solid business practices or world-class institutions that give them competitive advantages over their regional rivals.

The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the Report. While the usual suspects dominated the top of the list–a host of Nordic countries, along with developed markets in Asia and North America occupied most of the top spots–there were a few surprises [also see Looking For Consumers? ETFs To Play Millionaire-Heavy Countries].

The United States, which until last year was the top rated country, slipped from its silver medal position by two places to number four overall. While this downward trend is certainly unsettling, all three of the countries that beat out the U.S. are popular investment destinations–and easily accessible to U.S. investors through ETFs. Below, we highlight three ETFs that offer exposure to the most competitive countries in the world [for more ETF insights, sign up for our free ETF newsletter].

3. Singapore

In this year’s report, Singapore ranks as the third most competitive country in the world, barely beating out the U.S. for bronze. The country ranks number one in the world for a variety of key metrics including the quality of the educational system, legal rights index, and government corruption and regulatory burdens. The nation also rates highly for its impressive infrastructure and low tax rates, ensuring that businesses will continue to flock to the tiny city-state in Southeast Asia.

The main ETF tracking the Singaporean economy is the iShares MSCI Singapore Index Fund (EWS). The fund holds 32 securities in total with a heavy concentration in financials, which make up nearly half of the total assets. In terms of individual holdings, four companies make up more than 10% of the fund each, with the heaviest weightings going to United Overseas Bank, DBS Group, Singapore Telecom, and OCBC. Boosted by tremendous growth rates in its neighboring countries as well as in its own economy, EWS has surged by more than 10% so far in 2010, one of the best performers for a developed market [see Can Anything Stop The Singapore ETF?].

2. Sweden

Surging from its number four rank last year, Sweden now finds itself as the second most competitive economy on earth. Sweden ranks highly for its business sophistication, innovation, and general lack of corruption in the society. Although tax rates are relatively high in the country, investors and businesses seem to be willing to tolerate the high marginal rates in exchange for access to an extremely well-educated and technological savvy population.

Possibly thanks in part to its pro-business policies, the main ETF tracking the country’s economy, the iShares MSCI Sweden Index Fund (EWD) has had a solid 2010, posting a gain of nearly 12% so far this year, thoroughly crushing its euro zone counterparts. EWD has a heavy focus on industrial materials, financials, and telecommunication firms, which all make up more than 21% of the fund’s total assets. Top individual allocations currently go towards Ericsson (11.4%), Nordea Bank (11.1%), and Hennes & Mauritz (11.1%) a popular clothing manufacturer in the country [also read Non-Euro Europe ETF Options].

1. Switzerland

After trailing the U.S. for some time, Switzerland managed to surpass leapfrog last year and appears to be cementing its spot as the top nation in terms of general competitiveness. Although Switzerland appears to rate highly for virtually every category, its main strengths are in a sound educational system, high levels of innovation, and robust financial markets. Furthermore, the country ranks in the top seven for all nine of the report’s ‘business sophistication’ categories, underscoring just how developed the Swiss economy truly is.

For investors seeking exposure to Switzerland, the iShares MSCI Switzerland Index Fund (EWL) remains a popular choice. The fund tracks the MSCI Switzerland Index and has amassed close to half a billion in assets and trades roughly 214,000 shares every day. Unlike many country-specific ETFs, EWL has a heavy focus on health care and consumer goods, which make up the two top sectors in the fund’s holdings. Top individual allocations go towards food giant Nestle (21%) and two massive pharma companies; Novartis (12%) and Roche (11.2%). EWL is up only slightly in 2010, but has performed significantly better than its euro zone neighbors [see Seven ETFs To Invest Like Peter Schiff].

[see the full PDF report on Global Competitiveness here]

Disclosure: No positions at time of writing, photo is courtesy of Nitrato.