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Sweden ETF Investing

Written By Brian Hicks

Posted March 16, 2009

In a recession, boring is best…

We’re in a world where soup isn’t just food for sick people—Campbell’s stock (NYSE:CPB) has soothed many aching portfolios as financial contagion spread.

And far from being mocked as chumps while the market roared forward, U.S. Treasury bond investors have had the last laugh as a decade of S&P gains deflated.

When it comes to international stocks, boring old Sweden has beaten emerging bulls — like Brazil, most recently — as this chart of the iShares Sweden ETF (NYSE:EWD) shows:

sweden etf chart

Even though some Swedish banks served as outposts of financial access to now-troubled eastern European economies like Latvia, EWD has withstood systemic shocks and beaten its Brazilian counterpart (NYSE:EWZ). With a combination of industrial strength and top international management, Swedish companies merit a spot in your recession-fighting portfolio.

Stocking up on Stockholm Stocks

Sweden’s top stocks aren’t necessarily household names outside of northern Europe, at least not the way they’re listed in iShares filings…

For example, shoppers may not recognize Stockholm-traded Hennes & Mauritz shares, but retail customers in nearly 30 countries can be found carrying bags with H&M emblazoned on the side! H&M is one of EWD’s top holdings, and the ETF is the easiest way for U.S.-based investors to grab that company’s shares.

Same goes for Sandvik AB, the world’s top producer of metalworking tools that will be essential to any industrial recovery.

Sandvik is part of a heavy industrial allocation in the Swedish ETF (over 26%). Automaker Volvo is in there too, rounding out EWD’s top ten holdings.

Nevertheless, many of Scandinavia’s star stocks come from tech-heavy sectors like telecommunications.

Telecom equipment maker Ericsson (NASDAQ:ERIC) has made its mark from frosty northern Europe all the way to balmy Charlotte, North Carolina—the city’s football stadium was known as Ericsson Stadium from 1996-2006. TeliaSonera, another Swedish telecoms company in the EWD fund, is becoming a prominent player in wireless and broadband internet solutions, but it still has a much lower profile than Ericsson.

Ericsson claims customers in 175 countries. That’s just 5 short of the 180 countries the World Bank recognizes… not a bad reach from a base near the Arctic Circle!

Since Ericsson makes up 17% of EWD’s total allocation, the ETF can inflate and deflate with the fortunes of that one company. Fortunately, Ericsson has given EWD a big boost in 2009. ERIC shares are up 15% through mid-March, compared to a drop of almost the same amount in the S&P and 10% swoon among Ericsson’s Nasdaq tech peers. Ericsson’s newest move is a pending $2 billion network outsourcing deal with Kansas City’s Sprint Nextel (NYSE:S), which has been hemorrhaging customers on complaints of shoddy service.

That should save Sprint money and bring Ericsson new opportunities in the U.S. market.

High Taxes… Lower Risk?

Now, you shouldn’t think Sweden is totally immune to global financial market mayhem or high volatility when it hits. But what we look for as international stock investors are those country-to-country differences that can help our investments survive.

Perhaps ironically, the main capitalist qualm when it comes to Sweden—its taxation system in which the top marginal rate is 65%—may now be a buttress against fiscal chaos.

Interest-rate loosening and budget shuffling are making national leaders and central bankers all over the world look like Benny Hill these days. It would be comical if it weren’t all so frighteningly serious and urgent.

In Sweden, they’re walking the tightrope between having a robust state welfare system that also takes in one of the world’s highest proportions of asylum-seekers and the need to maintain growth potential and a healthy trade surplus. Investors are attracted to that balance, but only as long as it’s there.

Balance is key for EWD, too.

With 31% of its holdings split between just two companies—Ericsson and H&M—EWD investors should watch those firms carefully. However, country ETFs have become the best option for quick international diversification and a way to spread your bets around not only companies but also economies.

So far this year, the market likes what it sees in Sweden. Keep EWD on your radar throughout 2009.


Sam Hopkins

International Editor

P.S. – Not only Sweden, but all of its Scandinavian neighbors like Denmark and Norway have an adventurous spirit that goes back ages… Today, you won’t find Vikings on the high seas, but you will find Danish and Norwegian wind turbines, cleantech advances, and companies that use a world’s worth of new energy opportunities to expand beyond their Nordic homes. Green Chip International is tapping that explorer spirit with leading Scandinavian renewable energy companies that operate all over the globe. To learn more about our service and get a peek at the global green scene, click here.