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At the close of business on March 14, 2011, the Global-X Norway ETF (NYSEARCA:NORW) had the following composition:
The first thing that I see here are the weightings of the holdings. The largest two holdings, Statoil and DnB NOR, make up a disproportionate 36.76% of the fund’s total assets. The four largest holdings make up 46.4% of the fund’s total assets and two of these four are oil and gas companies. Statoil (NYSE:STO) is an integrated oil company and SeaDrill (NYSE:SDRL) is an offshore drilling company. Considering that only 20% of Norway’s GDP comes from oil and gas, this seems to be a rather high allocation to that industry. In addition to these two, the fund has another four companies that are directly involved with the oil and gas industry.
Norway is the second largest seafood exporter in the world, after China, yet fishing, fish farming, and seafood companies make up only 4.08% of the fund’s total assets. Norway also has large forestry, paper, and textile industries and yet the fund does not include any investments in these industries.
These criticisms could also be leveled at the FTSE Norway Index upon which NORW is based. This index is simply the largest thirty publicly traded stocks in Norway ranked by market cap. NORW is a fairly accurate representation of this index, with one or two exceptions:
The table above is pulled directly from the newest data available on the FTSE Norway 30 index web site. The Global-X fund has Yara International as the ninth largest holding in the ETF. Due to changes in the index, the ETF is much closer to the proper weighting of this particular company than the documentation of the index would suggest. The top ten companies make up 75% of the FTSE 30, so investors should not believe that they are purchasing a truly diversified ETF here.
With all that said, the fund does have a lot going for it. NORW is at this time the only pure play Norway ETF on the market. Norway is an incredibly wealthy country with one of the lowest unemployment rates in the world. Norway has the second largest GDP per capita (after Luxembourg) and the third highest PPP per capita in the world, according to the World Bank. The IMF ranks Norway fourth in PPP per capita, after Qatar, Luxembourg, and Singapore. Norway was also one of the least affected countries by the recent financial collapse.
NORW, due to its large holdings in oil and gas stocks, is an excellent way to bet on oil prices. Higher oil prices should increase the profits of the oil and gas companies (particularly Statoil) held by the ETF. Also, speculators and traders will likely push the prices of the underlying stocks up with the price of oil on the futures markets. Holders of NORW will benefit from this.
This ETF is also a way to play the Norwegian krone. Most of the companies whose stocks are held by the fund report their earnings in Norwegian kroner. If the dollar (NYSEARCA:USD) declines against the krone, this should nominally push up the earnings of the underlying companies when measured in dollars. This should push up the stock prices and benefit investors in the ETF.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am not invested in NORW. I am invested in one of the component stocks and may take a position in more of them. I will be adding to this position in the next 72 hours.

Source: A Look Inside the Global-X Norway ETF