Norway may be famous for its outdoor landscapes and northern lights, but international investors know the country for its growth rates, which compare favorably with growth rates elsewhere in the Eurozone. Since the industrial era, Norway's economy has posted strong growth rates that have consistently outperformed many of its European neighbors, particularly during economic downturns.
Here is a detailed look at how investors can build exposure to Norway's economy into their portfolios, as well as some benefits and risks to consider.
- Much of Norway's economy relies on the North Sea oil industry, which is mostly controlled by government agencies or quasi-governmental organizations.
- American Depository Receipts of Equinor ASA (NYSE: EQNR), an oil and gas company, is one of the most popular ways to invest in Norway.
- American investors can also buy Norweigian exchange-traded funds, such as Global X FTSE Nordic Region ETF (NYSE: GXF).
- Norway's reliance on a single industry, with changes in oil production and prices impacting the whole economy, creates potential risks for investors.
Norway's Oil-Centric Economy
Norway has relied heavily on its North Sea oil to finance its extensive welfare system and better-than-average economic growth. Unlike the oil and gas operations of many of its neighbors, Norway's are largely controlled by governmental or quasi-governmental entities. It should also be noted, however, that rise in the petroleum industry since the 1970s has resulted in a slowdown in many other economic sectors.
The growing petroleum industry has shielded the country against many economic downturns since the industrial era. But, it has also made Norway one of the most expensive countries in the world to live in and caused concerns that too much of its labor force is tied to petroleum. A drop in the petroleum market could create significant problems for the country.
Equinor & Other Norwegian ADRs
American Depository Receipts ("ADRs") provide U.S. investors with an easy way to purchase an individual stock trading on a non-U.S. stock exchange. When creating ADRs, U.S. banks purchase a bulk lot of shares from a foreign corporation, bundle them into groups, and then reissue them on the New York Stock Exchange, American Stock Exchange, or the NASDAQ. Most of these ADRs range in price from $10.00 to $100.00 per share, making them very affordable for smaller investors.
The most popular Norwegian ADR is Equinor ASA (NYSE:EQNR), which is an integrated oil and gas exploration and production company. The company has operations in 30 countries and territories, with proved reserves of 6 billion barrels of oil and natural gas. With a market capitalization of $58 billion as of February 2021, the company is one of the largest oil and gas companies in terms of both market cap and total profit.
Investing in Norway with ETFs
Exchange-traded funds ("ETFs") represent the easiest way for investors to gain exposure to Norway's companies since they provide access to a diverse basket of securities across several different industries. For a relatively low management fee, ETFs enable investors to purchase broad exposure and diversification within a market sector or, using index ETFs, in the broader market. As with all investments, some risk is inevitable, including the loss of capital.
The most popular Norwegian ETF, with an expense ratio of 0.56%, is the Global X FTSE Nordic Region ETF (NYSE: GXF), with an expense ratio of which tracks the FTSE Norway 30 Index that encompasses the country's largest companies. With net assets of $28 million, the company holds primarily oil and gas companies, including Novo Nordisk A/S-B, Vesta Wind Systems A/S, and Orsted A/S. The largest holding is Novo Nordisk, which accounts for about 14.15% of assets as of February 10, 2021.
Risks & Other Considerations
Norway's robust economy represents a great way for international investors to diversify their portfolios. But with its heavy exposure to the oil and gas industry, investors should be aware that a downturn in crude oil prices or production levels may lead to a downward turn in Norway's economy. Investors should carefully consider this exposure when incorporating Norwegian ADRs or ETFs into their overall investment portfolios.