Own Countries With All Different Types of Attributes

by: Roger Nusbaum

GlobalX is cranking up the new product machine to pump out the FTSE Norway 30 ETF which will have ticker symbol NORW. Long time readers will know I place a high value on Norway as an investment destination and I think a country fund for Norway is overdue.

I will be doing a write-up about it for theStreet.com so without front running that I will say that it is heaviest by far in the energy sector which should not be a surprise to anyone but also offers access to a country through a fund that is not heavy in financial stocks. That may seem a bit redundant but many country funds out there are very heavy in financials which is not bad by itself but if you buy ten country funds and they are all 50% financials you are not well diversified at the sector level. No word yet on whether any of the Norwegian fisheries are in the new fund.

In order not to front run the article I'll write on NORW I'll make a bigger picture point in this post. A couple of days ago I was asked to share a couple of observations with one of the news services about the most popular new ETFs from 2010--most popular in terms of assets in the funds.

The list of funds provided by the news service generally had a theme to them of normal domestic equity investing doesn't work anymore. I say this based on the various metals fund listed along with country funds and an emerging market debt fund and the Norway fund plays right into the idea.

Obviously I've been beating this drum for a long time. When I first started writing about these types of destinations, the idea was better diversification than Europe because they have different fundamental attributes than the US. Different attributes, IMO, makes for better diversification. The way things have evolved, it turns out that many of these countries had better fundamentals coming into the crisis and have done a better job recovering from the way the crisis played out in global stock markets.

The attractiveness these various normal domestic equity investing doesn't work anymore-funds is easy to understand and the performance has garnered investor demand and the fund providers are meeting that demand with supply in the form of countries, very specialized mining company funds and so on.

The behaviors exhibited have all happened before, like with solar stocks 30 years ago and internet stocks ten years ago. I do not conclude the same outcome here but it is worth understanding that the creation of many investment products often leads to supply overwhelming demand resulting in lower prices. Arguing over whether this can happen with these types of funds, countries and metals is less productive than making sure that some sort large decline does not do your portfolio in.

The best way to do this is to own countries will all sorts of different attributes. At various points countries like Hungary, Latvia and Iceland have had their turns as the best performing markets. I realize these countries aren't easily accessible but the point is easy to grasp. Who knows how long it will be before these three make sense again (might already be there with Latvia) but these are times that favor surplus (or close to surplus) countries. At some point will be a time that favors deficit countries that are more in their own world.

Hopefully it is clear I would not suggest holding on to something like Hungary all the way down, this is more about recognizing that too much of anything makes for risky portfolio construction.

Statoil (pictured, not mentioned) is a client and personal holding.