The chart covers ordinary shares of Statoil (NYSE:STO), Norway's OBX Index, Yara International and Norwegian Property Group for the last year.
I've been writing about Norway for years now and have written many times about using Statoil as a proxy for the country. Last week I disclosed selling some of the position.
The case for Norway has always been the same, which is that anything good for oil will be good for Norway. Additionally, it is a commodity-based economy with surpluses galore and it is at a different point in the economic cycle. (Commodity based economies are often at a different point in the economic cycle, which usually makes for good diversification.) Contrast that with the US, which is a service-based deficit country.
My hope with Statoil has simply been to capture Norway, for good or for bad. If there was value to be added, it would come from just owning the country. As the chart shows the stock correlates closely to the index. Statoil is by far the largest stock in the index and getting the proxy aspect right in this case was very easy.
Also charted is Yara, a chemical and fertilizer company, and like other stocks in the space it is up a lot. It would obviously have been a great hold, but I do not think it is a proxy for Norway. NPRO owns retail and office properties in Norway and has done what a lot of other real estate stocks have done. I'm sure it will have its day in the sun again but, whether it does or not, it is also not a proxy for the country.
There is no ETF for Norway that can be accessed by US investors. In going through the top down process my thought about oil led me to Norway several years ago. The thing that mattered first and foremost was exposure to the country. Once I decided yes, the next step was to figure out what I thought would be the best tool; stock, ETF or some other type of fund.
I didn't find any funds, so that meant stocks. Statoil was and is the biggest component. It is an oil and natural gas company which was the catalyst behind my interest. Additionally, I liked the rest of the story so I bought it.
If you are one to pick a country you might go through a similar process of building a case for the country, then figuring out whether you just want to go along for the ride like with Statoil, or if you are going to try to add value versus that country's index. If you just want to go along for the ride then a country fund could work However, you need to be cognizant of how the sector weightings fit in with everything else you own. The advantage of an ETF in this context is avoiding single stock risk and the downside might be that you give up dividend yield.
Some folks are turned off from buying an individual foreign stock but there may be hope for those folks as an ETF from NETS just listed for the Portugal PSI 20 under ticker. If they were willing to commit to Portugal I think we can infer that other uncovered countries will be on the way at some point.