Late last year, Global X brought to market the FTSE Norway 30 ETF (NORW), the first-ever product to feature targeted exposure to Norway. While the FTSE Nordic 30 ETF (GXF) has been around since late 2009, it only features a 21% exposure to the Norwegian economy, leaving a major exposure gap that was waiting to be filled. NORW reached its one year anniversary earlier this month, putting it on the map for many investors and advisors who have age restrictions on their underlying investments. But the first year for NORW has been rather tumultuous, as the lone standing fund for Norwegian exposure fell prey to this year’s euro fears [see also Euro Free Europe Portfolio Now Available].
Under The Hood
The ETF tracks the FTSE Norway 30 Index, which is simply designed to reflect broad based equity market performance of some of the largest Norwegian companies. From a diversity standpoint, NORW is top-heavy, with just 31 total holdings and over 75% of its total assets allocated to the top ten of those securities. Big names like Statoil and Telenor make an appearance in the top holdings. The fund is heavily tilted towards energy (45%) and financials (15%), though it still features good exposure to a number of other sectors [see NORW Holdings]. From a market cap perspective, the fund features a healthy spread among firms of all sizes, with large cap companies receiving the highest weight. NORW charges 50 basis points and celebrated its first birthday on November 10th of 2011 [see also Greece ETF On The Way? Global X Details Slew Of International ETFs].
The Norwegian Economy
The investment thesis behind this product is compelling even in the current environment; Norway is one of the most developed and diverse economies in the world. The small nation has the third highest GDP per-capita in the world, and was ranked first on the Human Development Index in 2009. This impressively high GDP has given Norway one of the highest standards of living in the world, but perhaps more important than a high GDP, is the fact that Norway lies outside of the European Union, and has not adopted the euro as its currency. Not having direct ties to the scrutinized euro, Norway has been able to maintain what many call the world’s most stable economy [see also ETF Insider: Cold Turkey For Europe].
Despite the country’s small size, it is an exporting powerhouse; the country is the 3rd largest natural gas exporter, 5th largest oil exporter, and second largest fish exporter globally. While traditional fuels are clearly a big industry, alternative energies are still in focus, with hydroelectric plants accounting for 98-99% of the country’s electric power ensuring that the country can take full advantage of any spikes in oil prices by continuing to sell almost all of their production abroad. As an exporting giant, it’s surprising that it took so long for an ETF to dedicate itself to this bustling economy. But for all that Norway does well, it was unable to escape the volatility and weakness displayed by the majority of Europe this year [see also 25 Ways To Invest In Natural Gas].
One Year Woes
Upon turning one, a look back at this fund’s performance reveals that even a non-European Union country is not immune to the issues of its surrounding nations. The ETF had been performing well until late July and early August rolled around; just about the time that Euro fears were reignited. From its close on July 5th (around the time that it started losing steam), the fund has lost about 25% of its value. Prior to that day, the fund was up 11.4% from its inception, a relatively strong performance. As a massive exporting economy, it makes sense that NORW will be heavily affected by the EU, as the imports and demand of the nation-bloc will likely drop in order to save assets to try and keep their individual economies afloat [see also 25 Things Every Financial Advisor Should Know About ETFs].
While many investors have been scrambling to nix euro exposure from their portfolios, NORW may prove that avoiding the euro altogether still is not a safe option. Other than Switzerland, Norway is about as far removed from the rest of Europe as one can find, yet it still struggled during this time period. Fortunately, the news for this young fund isn’t all bad.
Compare NORW to GXF, the ETF that offers exposure to the entire Nordic region (Sweden, Norway, Denmark, and Finland), and there is a great upside for this ETF. Since inception, NORW has lost about 15.9%, while GXF has fallen by 18.2% during that same period, indicating that the Norwegian economy may be stronger than its surrounding region. Using the same period, the MSCI EMU Index Fund (EZU) fund, which measures the equity performance of the euro-zone, has lost more than 21% (since NORW’s inception). The chart below compares the trailing years of NORW and EZU [see also Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields].
For investors looking to make a play, NORW is certainly cheap for the time being, but while it is not directly effected by the euro’s issues, it will still have a significant impact on this ETF’s returns. That being said, NORW presents itself as one of the safer European plays until things start to cool down in the indebted region.
Disclosure: Photo courtesy of Cato Edvardsen. No positions at time of writing.