How to Invest in Norway’s ADRs and ETFs

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Norway may be famous for its outdoor landscapes and northern lights, but international investors know the country for its robust growth rates. 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 .

In this article, we’ll take 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.

Norway’s Oil Centric Economy

Norway has relied heavily on its North Sea oil exploits to finance its extensive welfare system and robust economic growth. As opposed to many of its neighbors, the country’s oil and gas operations are largely controlled by governmental or quasi-governmental entities. The rise in the petroleum industry since the 1970s has resulted in a slowdown in many other 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. After all, a drop in the petroleum market could create significant problems for the country.

Statoil & 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 approachable.

The most popular Norwegian ADR is Statoil ASA (NYSE: STO), which is an integrated oil and gas exploration and production company. As of FY2011, the company had operations in 41 countries and territories, with proved reserves of 2,276 million barrels of oil and 3,150 billion cubic meters of natural gas. With a market capitalization of $72 billion, as of August 2013, the company is the 11th largest oil and gas company and 26th largest company in the world by 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. While many ETFs charge a modest fee (expense ratio ), they enable investors to purchase this broad exposure in a single U.S.-traded security. However, there are some risks that investors should consider before committing capital.

The most popular Norwegian ETF is the Global X FTSE Norway 30 ETF (NYSE: NORW), which tracks the FTSE Norway 30 Index that encompasses the country’s largest companies. With net assets of $63.6 million, the company holds primarily oil and gas companies, including Statoil ASA, DNB Norway ASA, and SeaDrill Ltd. The largest holding is Statoil, which accounts for about 15.5% of assets, with an expense ratio of 0.5%, as of August 2013.

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 could lead to a troubling turn for Norway’s economy. As a result, investors should carefully consider this exposure when incorporating Norwegian ADRs or ETFs into their overall investment portfolios.