ETF Exposes Forgotten Part of Europe

The simplicity of Nordic markets has contributed to their outperformance. According to data compiled by IndexUniverse.com, the methodology that underlies the Nordic 30 ETF has averaged an annualized return of negative 2% versus negative 6.2% for the S&P 500. It also outperformed the EAFE Index fund, which has dropped 5.6% over three years, according to ETFConnect. The five-year numbers show the Nordic 30 up 9.2% on an annualized basis, S&P 500 down 0.1% and the EAFE Index fund up 4.7%.

The Nordic ETF could be a tool for foreign developed markets. The EAFE Index fund will continue to be an inferior way to access international markets. Developed markets that I most want to own are the Nordics, Australia and Canada. (Israel has a lot going for it but some index providers still think of it as an emerging market.)

An investor looking to target 30% in foreign developed markets could allocate 15% to the Nordic 30, 8% to iShares MSCI Australia Index Fund(EWA) and 7% to iShares MSCI Canada Index Fund(EWC). Each country weight is modest at less than 10%. The big caveat is the weighting to financial stocks. As mentioned above, the Nordic 30 is 28% financials, compared with 41% for iShares Australia and 31% for iShares Canada. This would require underweighting financials in the domestic portion of the portfolio, which, given the fundamental state of the industry domestically, should be easy to do.

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