Looking for a port in a storm?
If you’re feeling a bit battered by trade-war fears or other political issues, consider Norwegian stocks, which have been holding up better than other equities, thanks in part to the country’s low level of political risk.
Worrying headlines are “driving some demand toward countries like Norway,” says James Calhoun, a portfolio manager at Accuvest Global Advisors. His shop is wagering on the stable, oil-rich, and independent-minded Scandinavian nation via the Global X MSCI Norway exchange-traded fund NORW, -0.07% “There is an advantage to being in low-risk countries,” Calhoun tells Barron’s. “Our model is picking up on that—this higher demand for a more protected currency and a lower political-risk environment.” Accuvest places country bets based on a model with four categories: risk, momentum, valuation, and fundamentals.
Global X’s Norway ETF, along with the rival iShares MSCI Norway Capped ENOR, +0.25% which tracks the same MSCI index, are among this year’s five top-performing foreign equity ETFs, according to research firm XTF.com’s data on U.S.-listed, country-specific, nonleveraged funds. Each Norwegian fund is up about 8% as 2018’s first half comes to an end, while the Oslo OBX benchmark has gained about 9%.
Norway’s stocks don’t look like a steal, but Calhoun notes that they appear roughly average in terms of price to forward-year estimated earnings. They trade around 13.8 times consensus forecasts, while the mean is 13.6 among the 35 nations that Accuvest ranks each month. And Calhoun points out that the Norwegian krone rates as the second-cheapest currency by Accuvest’s metrics. That basically means a discount for anyone buying with dollars. Norway doesn’t use the euro, and it isn’t part of the European Union, although it is in the European Economic Area—kind of an “EU Light.”
The biggest component for the Global X and iShares funds, which each has 61 holdings, is oil giant Equinor EQNR, +0.46% previously named Statoil, with a 19% weighting. Then come bank DnB at 11%, telecom Telenor ASA at 9%, and seafood outfit Marine Harvest at 5%.
Brent crude, the global benchmark, briefly traded above $80 a barrel in recent weeks, a level last seen in 2014, and it’s up more than 60% over the past 12 months. North Sea oil has been a massive boon to Norway, making the country’s sovereign-wealth fund the world’s biggest with $1 trillion in assets.
Norway’s fundamentals, meaning both economic growth and corporate earnings, have looked a little soft lately by some Accuvest metrics, but Calhoun sees improvement ahead. “Another one quarter or two quarters of high oil prices, and the underlying fundamentals—the earnings growth, the sales-per-share growth, the return on equity for Norway—should start to come up,” he says.
Broadly speaking, Norway’s economic growth looks solid, albeit not stunning like the country’s fiords. Economists surveyed by FocusEconomics see gross domestic product expanding by 2% both this year and next.
“The economic picture continues to look optimistic, as accommodative financial conditions, a tighter labor market, higher hydrocarbon prices, and expansionary fiscal policies help shore up growth,” said FocusEconomics analysts in a recent note. Norway’s central bank kept its key policy rate at a record low of 0.5% in June, but signaled it probably will rise in September.
