Sweden's Privatization Plan Should Shine Light on Its ETF

Part of the allure of the Sweden exchange-traded fund (EWD) which is weighted 1% in the MSCI World index is its fiscal discipline and the promises by the newly elected center-right government to privatize state-owned companies.

Recently, the Swedish government raised $2.7bn from the first privatization through the sale of an 8 per cent stake in TeliaSonera, the Nordic telecommunications company, to around 200 institutional investors. And the deal was oversubscribed by a large margin. The government has pledged to raise SKr150bn ($22.3bn) from the sales over the next three years. I like the fact that the offering was to global investors and a very open and transparent process. The TeliaSonera shares were primarily sold to foreign investors at SKr50 each with 40 per cent going to British investors, 17 per cent to the US, 28 per cent to Swedish and 8 per cent to other Nordic buyers.

I have had the Sweden ETF (EWD) in some of our ETF portfolios since before the election ten months ago. Politics and policy do matter and should be part of the mix when picking ETFs. The Swedish ETF is also full of top flight global companies that trade at attractive valuations.

The top company in the Sweden ETF (EWD) is the telcom equipment maker Ericsson which accounts for 21% of the basket. This is a good thing since Ericsson is a market leader and is trading at an attractive valuation. Ericsson has a 25% return on equity and a much stronger balance sheet than its peers. Just over 40% of all telephone calls worldwide go through an Ericsson system. Other top companies in the Sweden ETF include Sandvik, Volvo and Atlas Copco.

Another great aspect of Sweden is the he Swedish central bank (Riksbank) which has raised rates seven times since the start of 2006. It is the oldest central bank in Europe and is a fierce inflation fighter. Official figures show Swedish inflation running at 1.9 per cent year-on-year in January, up from 1.6 percent in December. You can buy the Swedish Krona through the Swedish Krona currency ETF (FXS).