Global X considers European distribution push for Norway, Nordic ETFs
Global X Funds, the New York based ETF provider, is carefully weighing up the arguments to give a greater sales and distribution push in Europe to its FTSE Norway 30 and FTSE Nordic Region funds following a rise in investor interest in these more stable peripheral European markets.
Research analyst Alex Ashby said that Global X has considered developing the sales of these products in one of two ways.
Firstly, they have considered a cross-listing, for example, in Norway.
The other is setting up the relevant tax reporting status in respective European jurisdictions. This has already been done with other Global X products, and the company is measuring the investor response to these before deciding whether to apply the same development to the Norwegian and Nordic ETFs, he said.
Although it is estimated that most investors in the products still are US based, there is growing interest from European investors in the products, he said. Global X has seen interest from Germany, Switzerland, the UK and some Nordic investors already, and increasing the presence of these products in local European markets remains a key consideration.
The Norwegian product offers exposure in particular to the energy sector through the weighting of oil and gas and related services companies in the relevant index of 30 biggest companies. For example, Statoil alone accounts for more than 19% of the portfolio, according to the most recently published factsheet. Other oil and gas services related firms such as Seadrill, and Subsea also are in the top 10 holdings. Energy accounts for slightly more than 49% of the portfolio, followed by financials on about 13% and telecommunications on 9.6%.
The Nordic portfolio, which has a three-year track record, also involves a similar number of holdings, but spread across the region, with more exposure to sectors such as financials, industrials and healthcare. Statoil is a top 10 holding here too, but the portfolio’s biggest is Novo Nordisk, the Danish company focused on treatment for diabetes,which accounts for a 13.5% share. Banks Nordea, Handelsbanken, Swedbank, SEB and Finnish insurer Sampo are all in the top 10 holdings.
Ashby said that both products appeal to a certain type of investor; someone who is looking for European exposure, but more at the periphery and via markets that are considered more stable than the core or southern members of the EU.
Global X products generally target retail investors, but Ashby says he suspects these two products in particular are attracting institutional investors for the reasons outlined.
There are still risks, of course. Currency is one specific to these products because each of the Nordic markets retains a different currency. There is no currency hedging being done, and considering that most of the underlying assets are local securities, then the sharp appreciation of the NOK in particular given the country’s relative interest rate position against the key Fed and ECB rates means that it is a risk that investors need to be aware of.
Ashby noted both the Norwegian central bank’s limited ability to shift rates downwards given that country’s property asset price bubble ongoing, and the decision this week by Sweden’s central bank to cut its repo rate citing a poorer macroeconomic outlook and need to ensure it met its inflation target.
On a more positive note, he said that the turnover in the portfolios is limited because of the nature of the indices being tracked. They represent the biggest companies in the region, which means index constituent changes are limited apart from events such as M&A activity.
Some securities are bought on the US market in the form of ADRs. This is because they are liquid and can be bought at lower cost than the local securities. Both ETFs sell for 50bps in cost.