When people think oil, they tend to think of the Middle East. Or perhaps they picture Venezuela. Some may even worry about the safety of the natural resources in Nigeria.
Yet how many people are aware that the 3rd largest exporter of oil is Norway? I myself tend to think of smoked salmon… but hey… this is an oil-rich area.
Due in large part to high Norwegian interest rates and the demand for the volatile commodity, the Norwegian kroner was one of the top three currencies in terms of 12-month performance. However, there isn’t a currency ETF for direct investment in the Norwegian tender. (You can invest in Sweden’s "kroner.")
Norwegian companies are also awash in merger mania. Ericsson bought Norway’s Tandberg Television while Statoil bought Norsk Hydro. Consequently, Norway’s main stock exchange has been hitting all-time highs and notching emerging market-like gains of 40+ percent over 12 months.
Unfortunately, there’s no ETF for Norway either. You can only invest in individual stocks in the oil-rich, export-led country.
In general, I do not favor individual stock investing. Even the main exchange, the Oslo Bors, witnessed a single-day decline of 8.6% on the heels of China’s single-day 9% decline in late February. Simply put, little ‘ol Norway is a tempestuous prospect… even if a diversfied ETF basket did exist.
That said, Norway has a a solid economy, a strong currency and a dynamic line-up of mid-sized companies ready to challenge the world. How might one benefit with a bit less risk?
One might use a highly correlated index with the Oslo Bors of Norway; that is, even though the holdings aren’t the same, a highly correlated index with Norwegian stocks have historically produced similar results.
Not surprisingly, then, the iShares Global Energy Index (IXC) has matched Norway’s primary stock exchange stride for stride over the past 5 years. And while IXC has certainly seen some fits in 2007, it currently has 9% year-to-date while pushing to new all-time highs.
Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.