A Guide to Investing in Sweden
The Perfect Mix Between Capitalism and Socialism
"It is when we all play safe that we create a world of utmost insecurity." -- Dag Hammarskjold, Swedish Statesman and United Nations official.
Sweden has developed a highly competitive capitalist economy with a generous and universal welfare system known as the Nordic Model. With its diverse and high tech economy, international investors are attracted to the country's stability, particularly during the tech bubble of 2001, global economic crisis of 2008, and other crises.
Sweden's Robust & Growing Economy
Sweden's economy evolved from agriculture to industry during the 19th century. By the 1930s, the country had one of the highest standards of living in the world. The country took a neutral position during both world wars and benefited from the subsequent post-war booms, but experienced slower growth rates in the 1970s through the 1990s.
In the 1980s, Sweden began experiencing a real estate and financial asset bubble driven by a rapid increase in lending. These problems culminated in an economic crisis in the 1990s, caused by the restructuring of the tax system. After the collapse, the country's gross domestic product (GDP) fell 5% between 1990 and 1993, while unemployment soared.
The government eventually purchased the troubled assets and the crisis drew to a close by the late 1990s. Since then, Sweden's economy has grown to become the fourth most competitive in the world with strong GDP growth prospects and low inflation, thanks in part to its refusal to joint the European Monetary Union, which has experienced a downturn since 2008.
Investing in Sweden with ETFs & ADRs
The easiest way to invest in Sweden is by purchasing an exchange-traded fund (ETF), which provides instant diversification in a U.S.-traded security. With over $350 million in net assets and 33 different holdings, the iShares MSCI Sweden Index ETF (NYSE: EWD) represents the most popular option for investors looking for exposure to the country.
Some other ETFs with Swedish exposure include:
- FTSE Nordic 30 ETF (NYSE: GFX)
- S&P International Developed High Beta Portfolio (NYSE: IDHB)
- Europe SmallCap Dividend Fund (NYSE: DFE)
Investors looking for more direct exposure to Swedish stocks may want to consider American Depository Receipts (ADRs), which are U.S. traded securities that mimic the movements of foreign stocks. Many of these ADRs trade on major U.S. stock exchanges, like the NYSE, while others trade on OTC Markets exchanges, like the Pink Sheets.
Some popular Swedish ADRs include:
- Ericsson (NASDAQ: ERIC)
- AB Volvo (Pink Sheets: VOLVY)
- Atlas Copco AB (Pink Sheets: ATLKY)
Benefits & Risks of Investing in Sweden
Sweden offers investors a robust modern capitalist economy that has survived many economic downturns since the 1990s. But despite this strong performance, there are many risks that international investors should be aware of before committing capital.
Benefits of investing in Sweden include:
- Strong Capitalist Economy. Sweden has a highly competitive capitalist economy that houses many multi-national corporations in a diverse set of industries.
- Low Risk of a Debt Crisis. Sweden's debt-to-GDP ratio remains very low, with the government running surpluses nearly every year since 1998.
Risks of investing in Sweden include:
- Unionized Workforces. Approximately 70% of Sweden's workforce is unionized, which could pose problems for some popular ADRs.
- Extensive Welfare Benefits. Sweden is well known for maintaining extensive welfare benefits, which has worked so far, but may pose a problem with slower GDP growth.
Key Points to Remember
- Sweden has developed a highly competitive capitalist economy with a generous and universal welfare system known as the Nordic Model, making it a very unique opportunity for international investors.
- The easiest way to invest in Sweden is by purchasing the iShares MSCI Sweden Index ETF (NYSE: EWD), while more advanced investors can consider one of many ADRs.
- There are many benefits and risks that international investors should consider before investing in Sweden.