ETF XRAY

Swedish ETF (EWD) Needs Active Privatization Program

By Carl Delfeld of the Chartwell ETF Advisor

Part of the allure of the Sweden exchange-traded fund (EWD) which is weighted 1% in the MSCI World index is its fiscal discipline and the promises by its center-right government to privatize state-owned companies.

Last fall, the Swedish government raised $2.7bn from the first privatization through the sale of an 8 per cent stake in TeliaSonera, the Nordic telecommunications company, to around 200 institutional investors. And the deal was oversubscribed by a large margin. I like the fact that the offering was to global investors and a very open and transparent process. The TeliaSonera shares were primarily sold to foreign investors at SKr50 each with 40 per cent going to British investors, 17 per cent to the US, 28 per cent to Swedish and 8 per cent to other Nordic buyers.

But the privatization program which was one of the centre-right government’s key pledges, seems to have been put on the back burner.

“We are evaluating timing and price. It is possible that subprime events will have repercussions on our agenda,” Mats Odell, minister for financial markets, who is overseeing the privatisation process, told the Financial Times in an interview.

The government of Fredrik Reinfeldt, prime minister, is in the process of selling stakes in six companies by 2010, including Nordea, the banking group, SBAB, a mortgage lender, and TeliaSonera, the telecommunications company. The sales mark a break with Sweden’s socialist past to allow the free market a greater role in the economy. Mr Odell said he was confident the government would reach its original goal of raising $33bn by 2010.

The top company in the Sweden ETF (EWD) is the telcom equipment maker Ericsson which accounts for 21% of the basket. This is a good thing since Ericsson is a great company and attractive stock. Ericsson has a 25% return on equity and a much stronger balance sheet than its peers. Just over 40% of all telephone calls worldwide go through an Ericsson system. Other top companies in the Sweden ETF include Sandvik, Volvo and Atlas Copco.

Another great aspect of Sweden is the he Swedish central bank (Riksbank) which has raised rates seven times since the start of 2006. It is the oldest central bank in Europe and is a fierce inflation fighter. You can buy the Swedish Krona through the Swedish Krona currency ETF (FXS).

The Swedish ETF (EWD) which is down 3.2% this year, has a nice dividend yield of 4% and is trading at 1.95 times book value and 10.7 times recent S&P reported earnings data. Find out if Sweden should be in your global portfolio by joining Chartwell ETF.

Ericsson Drags Down Swedish ETF (EWD)

By Carl Delfeld of the Chartwell ETF Advisor

Before investing in a country specific exchange-traded fund (ETF), look under the hood and see what companies are weighted the highest in the ETF basket. The top company may account for more than you think. In the case of the Sweden ETF (EWD) the world’s largest telecommunications equipment manufacturer, Ericsson, accounts for 21% of the basket.

This has been a good thing for the Sweden ETF until, as the Financial Times reported yesterday, when Ericsson issued a severe profit warning yesterday that wiped out an unbelievable quarter of its market value sparking a sweeping change to its business strategy.

The Swedish company said operating income is expected to plummet 36 per cent ($865m) in the third quarter compared with the same period last year. Ericsson blamed the warning on a shortfall in contracts to expand or upgrade existing mobile networks which generate higher margins compared with deals to roll out new mobile infrastructure in emerging markets like China and India.

Ericsson’s shares closed 23.8 per cent down for the day. The Swedish ETF (EWD) ended the day down just under 5%.

Swedish Central Bank Raises Rates - ETF and Currency Jumps

The Swedish exchange-traded fund (EWD) and the Swedish Krona are both trading up 1.7% today as higher interest rates highlight the monetary authorities discipline in fighting inflation.

Sweden’s central bank, the Riksbank which is the the oldest in Europe, has raised interest rates by a quarter percentage point to 3.5 per cent and adopted a more hawkish stance after indicating there would be two more quarter point increases before the year is over. David Ibison of the Financial Times reports that the Riksbank also raised its medium-term interest rate forecast to 4.4 per cent by the end of 2009, well above the 3.7 per cent it forecast in February.

The increases are attributable to strong growth domestically and overseas, decreasing unemployment, higher-than-expected wage costs and a buoyant lending and housing market.

By Carl Delfeld of the Chartwell ETF Advisor

Sweden's Privatization Program and ETF

Part of the allure of the Sweden exchange-traded fund (EWD) has been plans for the newly elected center-right government to privatize state-owned companies. David Ibison of the Financial Times has reported that the words have been put into action.

Today the Swedish government has raised $2.7bn from the sale of an 8 per cent stake in TeliaSonera, the Nordic telecommunications company, to around 200 institutional investors. And the deal was oversubscribed by lunchtime today. The government has pledged to raise SKr150bn ($22.3bn) from the sales over the next three years. I like the fact that the offering was to global investors and a very open and transparent process. The TeliaSonera shares were primarily sold to foreign investors at SKr50 each with 40 per cent going to British investors, 17 per cent to the US, 28 per cent to Swedish and 8 per cent to other Nordic buyers.

I have had the Sweden ETF (EWD) in some of our ETF portfolios since before the election seven months ago. Politics and policy do matter and should be part of the mix when picking ETFs.

By Carl Delfeld of the Chartwell ETF Advisor

Ericsson Lead Swedish ETF

Before investing in a country specific exchange-traded fund (ETF), look under the hood and see what companies are weighted the highest in the ETF basket. The top company may account for more than you think. In the case of the Sweden ETF (EWD) the telcom equipment maker Ericsson accounts for 21% of the basket.

This is a good thing since Ericsson is a great company and attractve stock. With telco out of favor, Ericsson is up only 5% over the last 12 months but it has a 25% return on equity and a much stronger balance sheet than its peers. Just over 40% of all telephone calls worldwide go through an Ericsson system. Sounds crystal clear to me. Other top companies in the Sweden ETF include Svenska, Sandvik, Volvo and Atlas Copco.

Join me as I lead a small group of smart investors to visit Stockholm and Copenhagen in June 2007.

By Carl Delfeld of the Chartwell ETF Advisor

Swedish Currency ETF Rises with Rate Increase

By Carl Delfeld of the Chartwell ETF Advisor

The Sweden exchange-traded-fund or ETF (EWD) held steady today and the Swedish Krona currency ETF (FXS) increased by nearly 2% in morning trading as the Swedish central bank or Riksbank raised the benchmark interest rate.

The Swedish central bank raised its key repo rate on Thursday by 25 basis points to 3.25 per cent, the highest level since mid-2003, and said there may be only one more tightening to come over the next six months.

The rate rise today was the seventh increase since the start of 2006 and was widely expected in financial markets. Official figures released at the same time as the Riksbank announcement showed Swedish inflation running at 1.9 per cent year-on-year in January, up from 1.6 percent in December. The Swedish crown hit a three-month low against the euro and fell versus the dollar after the rate move and CPI figures.

Carl Delfeld, President of the Chartwell Global ETF Advisor will lead a group of individual investors to Sweden during the third week of June 2007 to learn more about investment opportunities in Sweden as well as visit historical and cultural sites.

Sweden’s Time to Choose

There are many who scoff that politics should have much to do with investing. When selecting ETFs for Chartwell’s portfolios, I look at several factors such as fundamentals of companies in the ETF basket, capital flows, technical factors, macro indicators, currencies and so on. But the direction of market reforms which is what politics is all about sometimes rises to the top. Think of the Reagan led Republican sweep in 1980 and the significant tax cuts and market reforms in Ireland and Australia which preceded their strong economic growth and sustained bull markets. 

Sweden is just such a case with a key election on September 17^th. For 65 of the last 74 years and the last 12 years, the center -left Social Democrats have been in control but the center-right opposition led by Mr. Fredrik Reinfeldt is mounting an effective campaign for change. The issues of deregulation, tax cuts, privatization and job creation are leading his reform agenda.

In January, Ericsson’s CEO Carl-Henric Svenberg announced his support for change and other key Swedish industrialists have followed suit. Sweden’s public sector accounts for 30% of its total workforce (15% in US and EU) and the state oversees 57 businesses with a market value of $70 billion while employing 200,000 people. There was some deregulation of the telecom, auto and banking sectors in the 1990s which led to good growth but this time the impact and stakes could be much higher.

The Kingdom of Sweden, with a population of 9 million and area exceeding that of California, has many attributes which investors should appreciate. King Carl Gustav (no relation) has reigned since 1973 over a well educated citizenry. It is blessed with ample natural resources like iron ore, copper, gold, timber, lead, zinc and hydro power but 70% of its economy is driven by services. Sweden’s per capita GDP is $30,000 and it has a balanced budget surplus, current account surplus, opted out of euro in 2003 and a vigilant central bank (Riksbank) which is targeting an inflation rate of 2%. Sweden’s stockmarket is also reasonably priced at 12.2 times earnings.

We have had the Swedish ETF (EWD) in some portfolios for some time with positive results. This year it is up 14% and over the last 12 months 19%. Ericsson accounts for 21% of the basket with quality companies like Svenska, Sandvik, Volvo and Atlas Copco all top ten holdings that readers might be familiar with. Capital good, technology and banking each contribute about 20% of sector exposure.

Below is a point and figure chart for (EWD) and some commentary provided by Don Smith, President of go2mypv.com.

I also recommend some exposure to the Swedish Krona which I think will marginally outperform the Euro. Rydex has an ETF (FXS) which tracks the Krona.

The ruling Social Democrats led by Prime Minister Goran Persson are fighting back furiously raising fears of radical change and attacking venture capitalists for calling for change at companies like Volvo. Given Mr. Reinfeldt’s assurances of moving smartly and incrementally and his strong and broad support amongst the business community, his party will be victorious.

Don’t wait until the election later this week, act now.   

By Carl Delfeld

Swedish ETF up 43%

When selecting ETFs for Chartwell ETF Advisor’s portfolios, Carl Delfeld look at several factors such as fundamentals of companies in the ETF basket, capital flows, technical factors, macro indicators, currencies and so on. But the direction of market reforms, which is what politics is all about, sometimes rises to the top when picking country ETFs. Think of the Reagan led Republican sweep in 1980 and the significant tax cuts and market reforms in Ireland and Australia which preceded their strong economic growth and sustained bull markets. 

Sweden is just such a case. For 65 of the last 74 years and the last 12 years, the center -left Social Democrats have been in control but the center-right opposition led by Mr. Fredrik Reinfeldt rolled on to victory on September 17^th.

The Kingdom of Sweden, with a population of 9 million and area exceeding that of California, has many attributes which investors should appreciate. King Carl Gustav has reigned since 1973 over a well educated citizenry. It is blessed with ample natural resources like iron ore, copper, gold, timber, lead, zinc and hydro power but 70% of its economy is driven by services.

Sweden’s per capita GDP is $30,000 and it has a balanced budget surplus, current account surplus, opted out of Euro in 2003 and a vigilant central bank (Riksbank) which is targeting an inflation rate of 2%. Sweden’s stockmarket is also reasonably priced at 13 times earnings.

The Sweden ETF (EWD) had a great year in 2006 up 43.4%. For a somewhat contrary view of the post-election Swedish ETF, here is an article by Roger Nusbaum.