ETFs For The Most Competitive Countries On Earth (EWD, EFNL, EWS, FSZ)
Eric Dutram: As the world economy becomes more intertwined, competition between various nations is becoming more intense. As a result, a great focus has been on establishing a more business-friendly climate with stable institutions, quality infrastructure, robust market access, and a top-notch workforce.
For investors seeking to ascertain which nations have done the best in developing a well rounded economic environment, there is a yearly ranking that is done by the World Economic Forum which looks to quantify competitiveness into a raw form. In this way, the organization ranks 144 nations on literally dozens of factors in order to find out which nations have done the best job in making their countries prime destinations for both investment and general business (read The Complete Guide to Preferred Stock ETF Investing).
While not necessarily meant to be an indicator of top stocks, the ranking system could be utilized by investors to target nations that have made great strides in keeping up with the broad globalization trend and those that have made their economies well positioned to compete in the increasingly competitive world. In this way, some investors may be well served by looking more closely at a few of the top ranked nations for investment as stable choices in this uncertain economic climate.
After all, it is hard to argue that investors will feel safer in investing in some of the top, most competitive nations as opposed to their weaker and less stable counterparts. For example, it will be quite difficult to find investors willing to invest in the last ranked country (Burundi) over this year’s top ranked nation of Switzerland (readFor Europe ETFs, It Is Hard to Beat Switzerland).
In this latest iteration of the survey, it is dominated by small nations mostly in the West or those with strong ties to the region. Meanwhile, the United States, which was fifth last year, has slipped for the fourth year in a row, down to the rank of 7th.
Given this decline by the U.S. and the proliferation of country-focused ETFs, it could be time for investors to look to other, more competitive nations for investment instead, especially if the United States continues to become less competitive. In light of this, we have highlighted a few ETF picks below which target some of the only nations to beat out the USA in terms of global competitiveness (see the full PDF report here):
Sweden currently ranks fourth in global competitiveness, a slight decline from where the nation was a few years ago when it was ranked second. Still, the nation ranks extremely high for technological factors, innovation, and strength of institutions, making it a quality investment destination.
Sweden has one of the more popular, and older, ETFs in the Nordic region with its iShares MSCI Sweden Index Fund (NYSEARCA:EWD). The product charges 51 basis points a year in fees but sees robust average daily volume of nearly a quarter million shares and AUM of $360 million.
Industrials and financials make up just over half of the portfolio while tech, consumer discretionary, and telecoms round out the top five. From an individual security perspective, the product isn’t too concentrated among its 36 holdings, although it does afford more than 7.5% to the top three.
Surging up the rankings over the past couple of years is the investment darling of Finland. The small nation is quickly catching up to its Nordic counterpart in Sweden thanks to its unmatched institutional framework, top notch education system, and low levels of corruption and crime (read Beyond Germany: Three European ETFs Tracking Strong Countries).
The only choice in the Finnish ETF market is a relatively new fund from iShares, the MSCI Finland Capped Investable Market Index Fund (BATS:EFNL). The product charges investors 53 basis points a year in fees but still hasn’t caught on yet, as it has paltry trading volumes and AUM.
Still, the fund provides a relatively diversified look at Finland’s market, with 29% going towards industrials, 15% to materials, and 14% to financials. The product is a little top heavy as the top three holdings account for roughly 30% of the assets, leaving a relatively small amount for the fund’s remaining 42 components.
Slowly marching up the ranking list is Singapore a small Southeast Asian city state that is now ranked number two in the world for global competitiveness according to the World Economic Forum. The nation is highly ranked in many categories but it really stands out in terms of its quality infrastructure, legal rights, and labor market efficiency.
Arguably the top way to play Singapore is with the iShares MSCI Singapore Index Fund (NYSEARCA:EWS). This product charges investors 52 basis points a year in fees but sees robust volume of about two million shares a day (see Singapore ETFs for the Rise of Asian Financial Centers).
In terms of exposure, the fund is tilted towards financials (32%), industrials (26%), and real estate (14%). This gives the product a focus on relatively high yielding securities which has only added to the nation’s impressive run this year and in the recent past.
The top ranked nation yet again is Switzerland, thanks to its impressive ranks on institutions, infrastructure, and innovation. The country does especially well in terms of its education system, spending on R&D activities, and the robust nature of the country’s financial markets.
While there are a few ways to target Switzerland in ETF form, one often overlooked way is with the First Trust Switzerland AlphaDEX Fund (NYSEARCA:FSZ). This product is a little on the pricey side at 80 basis points a year and volume is light, but it potentially offers investors a superior investment profile (read Three European ETFs beyond the Euro Zone).
No single stock makes up more than 5% of the ETF, suggesting solid diversification levels, and while it is tilted towards financials at 26% of the total, double digit allocations to industrials, basic materials, and health care helps to round out the portfolio. The product also pays out a sizable yield to investors although those worried about costs or quick trades may be better served by looking at EWL instead.
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